Business Strategies, HRM Policies

and Organizational Performance:

Evidence from the Peoples Republic
of China

by

Bo Zhang

A Thesis Submitted in Fulfilment o f the Requirements for the Degree

o f Doctor o f Philosophy of Cardiff University

Human Resource Management Section

of
Cardiff Business SchoolC ardiff University

April 2 0 1 1

i
 UMI Number: U584632

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II
 Acknowledgement
A PhD is an ambitious project and a major endeavour in life, which is not
only a degree but also a precious episode of life, teaching you the way of
life with isolation, confusion, stressfulness, enlightening and cheerful­
ness.

There are a lot of people I would like to thank for a variety of reasons.
First of all, my sincerely and heartfelt gratitude goes to Professor Jonathan
Morris, my primary supervisor. Without his common sense, vast knowl­
edge, academic rigour and helpful encouragement, I would never have
survived and accomplished this intellectual adventure.

Secondly, I would also like to thank all the members of the academic and
support staff at the Cardiff Business School for constructing a pleasant
learning and research environment.

Thirdly, completing this thesis would not have been possible without the
encouragement and support of my friends: Juan Du, Jing Dang, Hao Hong,
Li Dai, Peng Zhou, Amy Wei Tian and so on.

Fourthly, I am indebted to a girl named Wei Liu, for her virtuous, mag­
nanimous and bright character has been influencing and encouraging me
to face up to the unhappy side of life.

Last but by all means not least, I want thank my parents Jinlin Zhang and
Lixia Xie, without whose love, kindness and support I would never have
been able to complete this PhD. They always place their child’s interest
before their own, for which I am eternally grateful.

hi
 Abstract

There are various perspectives for SHRM modelling, including the universal per­
spective, the contingent-perspective, the configurational perspective (Delery and Doty,
1996) and the contingent-configurational perspective (Lepak and Shaw, 2008). Em­
pirical evidence supporting these modelling perspectives were collected from both
developed and transitional economies, but most o f the models built based on this
evidence were static, which uncovered how HRM generated competitive advantage
rather than sustainable competitive advantage. This thesis is aimed at building a dy­
namic model o f SHRM depicting the process o f sustainable competitive advantage
generation.

Drawing on the data collected via a survey in Beijing, this thesis’s research question
include,
1) What is the current state of the application o f SHRM in the PRC, and the rela­
tionships between business strategies, HRM policies and organizational performance?
2) What are the elements and what is the structure o f organizational performance,
and what are the links between organizational performance elements?
3) What strategic roles does the HR function play in the organization?
4) How do organizational contextual factors influence the linkages in SHRM sys­
tem?

It was found, first, that HRM in the researched enterprises was undergoing a change to
a strategic model. Second, links between business strategies, HRM and organizational
performance were proved in Chinese settings. Third, it deconstructed organizational
performance into HR outcomes, organizational outcomes, and financial accounting
outcomes, and proved the hierarchical effects between HRM and financial accounting
outcomes. Fourth, it linked organizational performance and strategic role o f HR
function in strategy formulation to business strategies, which made a dynamic SHRM
model generating sustainable competitive advantage. Fifth, it empirically proved that
HR not only helped in implementing strategies but was also involved in the strategy
formulation process.

IV
 Table of Content
Acknowledgement.......................................................................................................... Ill
Abstract............................................................................................................................IV
Table of Content.............................................................................................................. V
List o f Tables.................................................................................................................. IX
List o f Figures...................................................................................................................X
Abbreviations.................................................................................................................. XI
1.1 Introduction........................................................................................................2
1.2 Background: Literature Review on SHRM Research..................................... 3
1.2.1 Evolution o f HRM in PRC........................................................................4
1.2.2 Two Rounds o f HRM Reform..................................................................6
1.3 Research Objectives and Research Questions.................................................7
1.4 Conceptual Model and Research Methodology............................................... 9
1.4.1 A Neo-contingent Approach to SHRM: Contingent-configurational
Perspective o f SHRM Modelling, Competenceand Resource Based Strategy
Formulation and the Strategic Role o f HR Function.............................................. 9
1.4.2 Quantitative Cross-sectional Survey via Questionnaire in Beijing, the
PRC 13
1.5 Organization o f the Thesis.............................................................................. 14
Chapter 2 Strategic Human Resource Management..................................................18
2.1 Introduction...................................................................................................... 18
2.2 Defining SHRM.............................................................................................. 20
2.3 SHRM and HRM..................................................... 21
2.4 Fits in Strategic Human Resource Management........................................... 23
2.5 Constructs or Variables in the Framework o f SHRM................................... 26
2.5.1 Business Strategy.................................................................................... 26
2.5.2 Organizational Performance.................................................................. 31
2.5.3 Organizational Contextual Factors........................................................ 33
2.5.4 HR Roles in SHRM................................................................................ 45
2.6 HRM and the Perspectives o f SHRM Analysis and Modelling................... 46
2.7 Main Trends in SHRM Research................................................................... 52
2.8 Summary.......................................................................................................... 60
Chapter 3 SHRM in the PRC: the Transition from Central Planned Personnel
Management to SHRM...................................................................................................63
3.1 Introduction......................................................................................................63
3.2 The Changing PRC......................................................................................... 64
3.2.1 Changes o f Economic Environment...................................................... 64
3.2.2 The Changes in the Institutional Environment: Ownership Reforms 65
3.2.3 The Changes in Legal Environment...................................................... 67
3.2.4 The Changes in Business Environment: the Impacts from Globalization
68
3.3 Changes in HRM ......................................................................................... 68
3.3.1 Before the First Round o f Reforms: the Soviet-style Personnel System
70
3.3.2 The First Round of Reforms: Resulting in A HRM System with
Chinese Characteristics.......................................................................................... 71
3.3.3 The Second Round o f Reforms Underway: in Transition to SHRM. 74
3.3.4 Comparing the Two Rounds of HRM Reforms.................................... 79
3.4 SHRM in PRC Today..................................................................................... 80

v
 3.4.1 Application of SHRM Practices in the PRC Today..............................80
3.4.2 Does Integration between Business Strategies and HRM, and Fit
between HRM Policies and Practices Generate Superior Performance in the PRC?
87
3.4.3 Do HRM and the Fit between HRM Policies and Practices Predict
Organizational Performance?................................................................................ 88
3.5 Criticism and Gaps...........................................................................................90
3.6 The Expected Contributions o f this Research................................................95
3.7 Summary.......................................................................................................... 98
Chapter 4 A Conceptual Model of Dynamic SHRM System and the Empirical
Model to Be Tested....................................................................................................... 101
4.1 Introduction.....................................................................................................101
4.2 Theoretical Framework: Neo-contingency Theory.................................... 101
4.3 Conceptual model.......................................................................................... 105
4.3.1 Conceptual Model (part A): Contingent-ConfigurationalPerspective
and Competence-Resource-Based Strategy Formulation Theory......................107
4.3.2 Incorporating the Strategic Role of HR Function............................... 112
4.3.3 The Complete Conceptual Model: Combining Part A and Part B... 116
4.4 Empirical Model and Hypotheses Generation............................................. 120
4.4.1 Business strategies and HRM policies................................................. 120
4.4.2 HRM policies and organizational performance.................................. 123
4.4.3 Moderators and Mediators Used in This Research............................. 126
4.5 Measurements................................................................................................ 127
4.5.1 Business Strategic................................................................................. 128
4.5.2 The Adoption o f HRM Practices and Policies...................................129
4.5.3 The Strategic Roles o f HR Function........................................ ......... 132
4.5.4 HR Outcomes.........................................................................................133
4.5.5 Organizational Outcomes and Financial Accounting Outcomes 134
4.5.6 Organizational Contextual Factors (Control Variables).....................134
4.6 Summary......................................................................................................... 135
Chapter 5 Research Methodology............................................................................ 138
5.1 Introduction.....................................................................................................138
5.2 Research Purpose and Philosophical Stance................................................ 138
5.2.1 Research Purpose.................................................................................. 138
5.2.2 Philosophical Stance............................................................................. 139
5.3 Research Design............................................................................................ 141
5.3.1 Deductive Research.............................................................................. 141
5.3.2 Quantitative Research........................................................................... 143
5.3.3 Cross-Sectional Study........................................................................... 144
5.3.4 Research Strategy................................................................................. 145
5.4 Survey Methods in the People’s Republic of China....................................146
5.4.1 Primary Data Sources........................................................................... 146
5.4.2 Key Informant........................................................................................146
5.4.3 The Questionnaire Translated and Back-Translated...........................147
5.4.4 The Questionnaire Development Process............................................147
5.5 Sampling Techniques.....................................................................................155
5.5.1 Sampling Frame.....................................................................................156
5.5.2 Survey Sample..................................................................................... 157
5.6 Data Analysis: Statistical Technique Choice............................................... 157
5.7 Validity and Reliability Assessment.............................................................158

VI
 5.7.1 Content Validity.....................................................................15 8
5.7.2 Construct Validity..................................................................................159
5.7.3 Reliability Test.......................................................................................161
5.7.4 Common Method Bias Checking......................................................... 161
5.8 Summary......................................................................................................... 162
Chapter 6 Descriptive Data Analysis............................................................ 164
6.1 Introduction.....................................................................................................164
6.2 Demographic Profile of the Sample..............................................................164
6.2.1 Size o f Companies.................................................................................164
6.3 Descriptive Analysis of Constructs...............................................................166
6.3.1 Business Strategy.................................................................................. 166
6.3.2 HRM Policies.........................................................................................167
6.3.3 Organizational Performance................................................................. 171
6.3.4 Strategic Roles of HR Function............................................................ 171
6.4 Summary:........................................................................................................ 173
Chapter 7Testing Hypotheses of the Conceptual Model............................................ 175
7.1 Introduction.....................................................................................................175
7.2 Data Preparation and Screening.................................................................... 175
7.2.1 Missing Data.......................................................................................... 176
7.2.2 Outliers................................................................................................... 177
7.2.3 Non-responses Bias Test.......................................................................178
7.2.4 Normality, Linearity, Homoscedasticity and Multicollinearity 181
7.3 Item and Scale Purification............................................................................182
7.3.1 Item Analysis.........................................................................................183
7.3.2 Exploratory Factor Analysis.................................................................183
7.4 Testing the Hypotheses...................................................................... 193
7.4.1 Methods used in testing hypotheses:................................................... 193
7.4.2 The Impacts of Business Strategies on HRM Policies.......................194
7.4.3 The Effects o f HRM Polices on HR Outcomes,Organizational
Outcomes and Financial Accounting Outcomes.................................................196
7.4.4 The Effects of the HR Outcomes and Organizational Outcomes.... 197
7.4.5 The Mediation Effects o f HR Outcomes and Organizational Outcomes
200
7.4.6 The Effects of Control Variables.........................................................200
7.5 Summary........................................................................................................ 201
Chapter 8 Discussion.........................................................................203
8.1 Introduction.................................................................................................... 203
8.2 The Factorial Validity................................................................................... 203
8.3 The Application o f HRM Practices............................................................. 206
8.3.1 The Role of HR function..................................................................... 207
8.3.2 HR Planning.......................................................................................... 209
8.3.3 HR Staffing........................................................................................... 211
8.3.4 HR Appraisal ............................................................... 212
8.3.5 HR Compensation.................................................................................214
8.3.6 HR Training and Development............................................................219
8.3.7 Management-Employee Relationship................................................. 223
8.3.8 The Overall State of the Application o f HRM in the PRC................225
8.4 Hypotheses Testing....................................................................................... 227
8.4.1 The Effects of Business Strategies.......................................................228
8.4.2 The Effects of HRM policies on Organizational Performance 229

VII
 8.4.3 The Mediation Effects o f HR Outcomes and Organizational Outcomes
231
8.4.4 The Moderation Effects of Organizational Contextual Variables... 232
8.5 Summary........................................................................................................ 235
Chapter 9 Conclusions.............................................................................................. 239
9.1 Introduction.................................................................................................... 239
9.2 The Summary o f Research............................................................................239
9.3 Confirmed and Contributions.......................................................................243
9.3.1 Confirmed Model..................................................................................243
9.3.2 Contributions........................................................................................ 244
9.4 Implications, Limitations and Future research............................................247
9.4.1 Implications.......................................................................................... 247
9.4.2 Limitations and Directions for Future Research................................. 252
Bibliography:..... 255
Appendix:...................................................................................................................... 288
Appendix 2: Questionnaire (English).................................................................... 288
Appendix 3: Questionnaire (Chinese)..................................................................... 303

VIII
 List of Tables
Table 1: A Comparison between the First and Second Round HRM Reforms..........81
Table 2: A Comparison between Contingency and Neo-contingency Theories 104
Table 3: Business strategy............................................................................................128
Table 4: HR Planning................................................................................................... 129
Table 5: HR Staffing..................................................................................................... 130
Table 6: HR Appraising................................................................................................130
Table 7: HR Compensation...........................................................................................130
Table 8: HR Training and Development......................................................................131
Table 9: Management-Employee Relationship........................................................... 131
Table 10: Strategic Roles of HR.................................................................................. 132
Table 11: Human Resource Outcomes........................................................................133
Table 12: Organizational Performance........................................................................134
Table 13: Organizational Characteristics and External Environmental Factors 135
Table 14: Correlations between Variables.................................................................. 160
Table 15: Demographic Profile o f the Researched Firms (sample size: 168).......... 166
Table 16: Business Strategy..........................................................................................167
Table 17: Adoption o f HRM Policies..........................................................................169
Table 18: Organizational Performance........................................................................171
Table 19: Strategic Roles o f HR.................................................................................. 172
Table 20: Results o f Response and Non-response Bias Test..................................... 179
Table 21: Exploratory Factor Analysis o f HRM Polices............................................184
Table 22: Exploratory Factor Analysis o f the Strategic Role o f HR Function 187
Table 23: Exploratory Factory Analysis o f Business Strategies................................ 189
Table 24: Exploratory Factor Analysis o f Organizational Performance.................. 191
Table 25: Exploratory Factor Analysis o f Chinese Workplace Culture....................192
Table 26: Testing the Effect of Business Strategies on HRM policies......................195
Table 27: Testing the Mediating Effects o f HR Outcomes....................................... 198
Table 28: Testing the Mediating Effects o f Organizational Outcomes.....................199
Table 29: Summary o f the Outcomes o f Hypotheses Testing...................................227
Table 30: Objectives, Questions and Hypotheses Testing......................................... 241
Table 31: Summary o f the Results of Hypotheses Testing........................................ 242

IX
 List of Figures
Figure 1: Conceptual Model...........................................................................................12
Figure 2: Fit in SHRM research (source: Chenevert and Tremblay (2009))..............25
Figure 3: Three Phases o f HRM Evolution in PRC and the Driving Forces at Each
Round of Reforms........................................................................................................... 69
Figure 4: Conceptual model part A .............................................................................. 112
Figure 5: Four Roles o f personnel managers (Source: Storey, 1992).................... 114
Figure 6: Four Roles o f HR (Source: Ulrich, 1998)................................................. 115
Figure 7: Conceptual Model Part B ............................................................................. 116
Figure 8: The Conceptual Model of A Dynamic System...........................................118
Figure 9: Empirical Model Tested in this thesis......................................................... 119
Figure 10: The Confirmed Model................................................................................243

x
 Abbreviations

SF: Strategic Role o f H R Function in Strategy Formulation

SI: Strategic Role o f H R Function in Strategy Implementation

BS: Business Strategy

EFA: Exploratory Factor Analysis

ESO S: Employee Share Ownership Schemes

FAO: Financial Accounting Outcomes

H RM : Human Resource Management

H R M PC : Human Resource Management Policy Configurations

H R O : Human Resource Outcomes

O CF: Organizational Contextual Factors

OO: Organizational Outcomes

OP: Organizational Performance

PRC: the People’s Republic o f China

SHRM : Strategic Human Resource Management

SRHR: Strategic Role o f H R Function

XI
Chapter One

Introduction
1.1 Introduction
This research is focused on St rategic Human Resource Management
(SHRM) in a transitional economy based on data collected from the
People’s Republic of China (PRC). Specifically, it uses empirical data
from a transitional economy (PRC), and draws on the theories developed
in advanced economies to build a dynamic SHRM model. From a
neo-contingency perspective, it draws on contingent-configurational
perspective of SHRM modelling (Lepak and Shaw, 2008), competence
and resource based strategy formulation theory and the strategic role of
HR function to develop a conceptual model of a dynamic SHRM system,
which not only investigates the reciprocal relationships between organ­
izational variables in the SHRM system but also explores the elements,
structure, and roles of constructs, including organizational performance
and the strategic role of HR function. The reciprocal relationships is em­
ployed to differentiate the conceptual model of this research to the static
models and proposed that HRM and organizational performance influ­
encing each other reciprocally, rather than uni-directionally, and some
mediators existing in this relations.

This chapter is divided into six sections. Following this section, section
1.2 provides a brief review of the literature on both SHRM and HRM in
China. Section 1.3 delineates the research objectives and research ques­
tions of this research. Section 1.4 overviews the development of a con­
ceptual model and the design and implementation of research. The next
section, 1.5, explains the organization of this thesis.
1.2 Background: Literature Review on SHRM Research
SHRM has become one of the most popular terms in HRM research.
Terms like High Performance Working System (HPWS) and Best Prac­
tices (BP) are frequently used in the academic and practitioner literature.
The central argument of SHRM is the fits between SHRM elements, as
well as the fits between HRM and organizational variables (external and
internal), result in superior organizational performance.

SHRM writers focus their inquiries on what variables should be included

in the SHRM system (Jackson, et al., 1989; Jackson and Schuler, 1995)
and how these variables align themselves into the whole system and
contribute to the organizational performance (Delery and Doty, 1996;
Lepak and Snell, 2002; Chenevert and Tremblay, 2009). It has been ar­
gued that when studying HRM, organizational contextual factors should
N

be included. So far, a few organizational contextual factors are frequently

used when studying SHRM in different contexts, such as, ownership, age
and size of firm, internal technology, competitive strategies organiza­
tional structure, life-cycle, union presence, external technology change,
industry characteristics, intensity of competition, labour market condi­
tions, political, law and regulation, location and national culture.

There are generally four approaches to modelling SHRM, namely, a

universal approach, a contingency approach, a configurational approach
(Delery and Doty, 1996) and a contingent-configurational approach
(Lepak and Shaw, 2008). There are also different types of fits in SHRM
research, including environment fit, vertical strategic fit, internal organ­
izational fit, intra-function HR fit, and intra-activity HR fit (Chenevert
and Tremblay, 2009). This research adopts a contingent-configurational

3
approach to examine all the five types of fit’s contribution to organiza­
tional performance.

1.2.1 Evolution of HRM in PRC

The PRC’s transitional economy has exerted an enormous influence on its
HRM system (Zhu and Dowling, 1994; Zhu, 1997; Braun and Warner,
2002). The changes in the business environment in PRC can be reviewed
from four aspects: economic growth, the institutional environment, the
legal environment and the increasingly globalized business environment.

In terms of economic development, the PRC achieved an average eco­

nomic growth rate of 9.8% and, by 2007, the PRC was the second largest
beneficiary country of foreign direct investment (FDI), with the invest­
ment growing from US$4 billion in 1990 to US$72 billion in 2005
(UNCTAD 2006). Meanwhile, the PRC has been one of the largest out­
ward investors among developing economies, with a cumulative amount
of outward FDI of over US$57.2 billion by the end of 2005 (People’s
Daily 2006, p. 1). The increased use of FDI promoted the boom of Foreign
Invested Enterprises (FIE) in PRC, while the growth of outward FDI im­
plies an outgoing trend of Chinese firms, which in turn indicates a need for
SHRM to support the outgoing strategy.

The institutional change in the PRC has been mainly focused on the con­
struction of a socialist market economy and corresponding ownership
reform. The market operational reform has sought to substitute a mar­
ket-oriented system for the mandatory central planning system. The
market operation reforms have resulted in substantial shrinkage of the
centrally planned mechanism and an increasing role for the market in the
economic system (Zhu, et al., 2005). The deteriorating performance of
SOEs prompted the Chinese government to shift the focus of SOE reform
to ownership and corporate governance restructuring in the mid-1990s.
The main purpose of ownership reform was to improve the efficiency of
SOEs through clarification of property rights and relationships with gov­
ernment agencies, and by reducing government administrative interven­
tion in the operations of SOEs. An important part of the ownership reform
was employee ownership (that is, some company stock is sold to em­
ployees), thus linking the benefits of employees with company perform­
ance. Along with the increase of use of FDI, ownership in the PRC has
been diversified. There are several common types of ownerships currently
in the PRC, including State Owned Enterprises (SOE), Collectively
Owned Enterprises (COE), Privately Owned Enterprises (POE), Foreign
Invested Enterprises (FIE) and Joint Ventures (JV) (Cooke, 2005).
\

The legal environment has also been changed through the course of the
economic reforms. First, the promulgation of the Labour Law of 1994,
implemented in 1995, placed the emerging labour-market at its heart, le­
galizing individual contracts (geren hetong) and collective contracts (jiti
hetong) (Warner 1996). More recently, the Labour Contract Law of 2007
enacted by the Standing Committee of the National People’s Congress,
made it mandatory for employers to provide written contracts to their
workers and made it more difficult to lay-off employees. It also set out to
enhance to role of the Party-run trade unions, to boost workers’ repre­
sentative bodies and to facilitate collective bargaining.

The business environment changes in PRC have been mainly focused on

its increasing involvement into global economy. When Chinese firms go
out into the international market, they have to obey international conven­
tions, like those of the WTO and ILO. Admission to the WTO has now
exposed China to an unprecedented competitive and dynamic environ­
ment in which more modem HRM will be crucial to meet the challenge in
creating flexible and adaptable organizations (Chow and Liu, 2007).

1.2.2 Two Rounds of HRM Reform

HRM in the PRC has been transformed from an old Soviet style personnel
system to a hybrid HRM system forged by both Western mainstream
HRM and Chinese characteristics (Zhu and Warner, 2005). This thesis
proposes that there have been two main rounds of reform in HRM in PRC.
The first round of reforms changed the Soviet style personnel system to an
HRM system with Chinese characteristics, and the second round, which is
ongoing, is leading Chinese HRM to become more strategic.
"S

Before the first round of reforms, the Soviet style personnel system was
used, which can be portrayed as a centrally-controlled life-long em­
ployment system. Under the old planned economy, the personnel policies
and practices were strictly under the control of the state via related labour
and personnel administrative authorities and bureau. The state determined
both the number of employees to be employed and the wage scales of
workers in different categories. In this personnel system, the managers
and decision-makers of the organizations were only involved in adminis­
trative work and had no responsibilities for policy and practice designing
and strategy making.

The core of the first round of reforms in HRM in the PRC was the ‘three
personnel reforms’, namely, the implementation of labour contracts,
performance-linked rewards systems, and contributory social insurance

6
(Warner, 1995). In this process, the employment policies and practices
were decentralized to the enterprise level, and managers in SOEs were
granted autonomy in hiring and firing workers (Chow et al., 1999). With
the flux of FDI and the increase of the number of MNCs and FIEs,
Western style of HRM was transferred into the PRC gradually. But the
traditional Chinese HRM characteristics did not disappear. It was found
that some traditional practices coexist with market-oriented practices in
these enterprises (Goodall and Warner, 1999).

The second round of HRM reforms is ongoing with an aim of leading the
HR system to become more strategic. In the course of Chinese firm’s
globalization, they need their HRM to help fulfil their business strategies.
There are three features o f Chinese firms which make this round of reform
possible. They are: the shrinkage of SOEs and the emergence of labour
market, the rise and further development of FIEs and JVs operating in a
more market-oriented economy, an d the rise of POEs a nd organiza­
tion-level competitive strategy. The increase of FIE and JV provides great
opportunities for local firms to learn from their Western partners or
competitors. The rise of POE and the outgoing strategy creates the needs
for strategic HRM. Basically, the differences between the two rounds of
reforms are apparently reflected by the driving forces. In the first round,
the reform was led by government intervention, while the second round
has primarily been driven by the needs of, and at the discretion of, firms.

1.3 Research Objectives and Research Questions

Based on the literature review and the research interest of the author, this
thesis has several research objectives: first, to investigate the application
of SHRM practices in the PRC, second, to test western theories in a tran­

7
sitional economy context. Here, the focus is no longer the basic arguments
or assumptions of SHRM or HPWS or the HRM- performance link, but
the neo-contingency approach of organizational change. Specifically,
contingent-configurational perspective of SHRM modelling (Lepak and
Shaw, 2008), competence and resource based strategy formulation theory
and the strategic role of HR function are the three focal theories. A third
objective, a deepening and furthering of the second one, is that the author
builds a model to describe the dynamics or interactions between the
SHRM variables. This model differs from others by reflecting the way the
changes go on over time rather than just giving a snapshot of one way
causal relationships. Fourth, it will examine the way in which researchers
study certain constructs in the SHRM system and to explore the structure,
elements and roles of them. It will explore the role of the HR function in
the whole process of SHRM operations, and explore the structure and
elements of organizational performance, as well as the inter-relationships
between the elements. By doing this, it can further promote the signifi­
cance of HR’s strategy formulation role, and improve the understanding
of the process o f HRM- performance linkage, which used to be remained
in black box (or at least, had a lack of empirical evidence).

According to the research objectives above, the research questions are as

follows:
1) What is the current state of the application of SHRM in the PRC, what
are the relationships between business strategies, HRM polices and
organizational performance?
2) What are the elements and what is the structure of organizational
performance, and what are the links between organizational per­
formance elements?
3) What strategic roles does the HR function play in the organization?

8
4) How do organizational contextual factors influence the linkages in
SHRM system?

1.4 Conceptual Model and Research Methodology

1.4.1 A Neo-contingent Approach to SHRM: Contingent-configurational

Perspective of SHRM Modelling, Competence and Resource Based
Strategy Formulation and the Strategic Role of HR Function.
According to Dubin (1976), theory is an attempt to model certain aspect of
the empirical world. Wright and McMahan (1992) went on to argue that
the theories, if accurate, fulfill the objectives of prediction (knowledge of
the outcome) and understanding (knowledge of the process) regarding the
relationships among the variables of interest. Neo-contingency emerged
from the criticisms of contingency theory, such as Sorge and Maurice
(1990), Sorge (1991), Donaldson (1999, 2001) and Ramirez and
Fomerino (2007). Based on the research interests and the literature re­
viewed, a conceptual model reflecting the five main research concepts and
their relationships are proposed. The five research constructs are:

1) HRM Policy Configurations (HRMPC).

2) Business Strategy;
3) Strategic Role of HR (SRHR);
4) Organizational Performance.
5) Organizational Contextual Factor (OCF)

Three theories, Contingent-configurational perspective of SHRM model­

ling (Lepak and Shaw, 2008), competence and resource based strategy
formulation theory (Andrew, 1998) and the strategic role of HR function
(Storey, 1992; Ulrich, 1997, 1998), were drawn on to develop the con­
ceptual model. Neo-contingent theory argues that the organization moves
out of fit because of a change in the level of one or more of its contin­
gencies, such as an increase in size or diversification. According to An­
drews (1998), strategy is determined by both internal compe-
tence-resource and external opportunities. The external opportunities are
reflected by technology, ecology, economics, industry, society, politics,
while the internal competences include by financial competence, mana­
gerial competence, functional competence, organizational competence
and reputation history. Performance-driven change (Donaldson, 2002)
suggests that the high performance generates surplus resources, including
profits and cash flow, enhanced debt capacity, and a higher share price
that allows quality financing. These resources are surplus in that they are
additional to the resources already committed to present operations. Sur­
plus resources are therefore available to fund growth in the organization,
such as hiring new employees, opening new branches, launching new
products or services, purchasing more advanced technology, and acquir­
ing other firms.

This thesis uses the organizational performance’s measurements to reflect

both the achievement of enterprises and the competences and resources,
which can be used to predict the strategy formulation. HR outcomes and
organizational outcomes provide different organizational and managerial
competences, while financial accounting outcomes provides financial
resources. As a result, the different elements of the organizational per­
formance can influence the formulation of business strategies. In consid­
ering the changing role of the HR function, although it has been widely
accepted that HR plays both a strategy implementation role and strategy
formulation role (Storey, 1992; Ulrich, 1997, 1998), there is a lack of
empirical work in the SHRM field, especially in quantitative research.

10
The conceptual model of this thesis incorporates both of these two roles.
Also, it explores the elements and structure of organizational performance
and tests the hierarchical effects along HRM- performance link. The
conceptual model, presenting all the hypotheses developed based on the
related theories, is described by Figure 1

11
 Strategic Strategic
Role of HR Business Role of HR HRM HR Out­ Organizational Financial
Function in Strategies Function in Polices comes Outcomes Accounting
Formulating Implementing Outcomes
Strategy Strategy

Reversed Causality

Contextual Variables Contextual Variables Contextual Variables Contextual Variables

Contingency and/or control variables at organizational level:

Size, age, technology, unionisation, industry sector, etc

Figure 1: Conceptual Model

12
1.4.2 Quantitative Cross-sectional Survey via Questionnaire in Beijing,
the PRC
The thesis adopts a hypothesis based deductive approach to research de­
sign. This author hypothesised the conceptual model (see chapter 4),
which consists of constructs of interest in SHRM system. The hypotheses
are tested through the epistemological assumption of a scientific (posi­
tivist) approach, which involved a highly structured questionnaire. This
research is an exploratory one due to the fact that it investigates the rela­
tionships between organizational variables in SHRM and the elements and
structures o f certain constructs. The data was collected through
self-administrated structured questionnaires and analyzed with SPSS.

The survey was conducted in Beijing, PRC through self-administrated

questionnaires posted or emailed to 820 firms. Among the returned ques­
tionnaires, 168 usable ones were selected. This survey went through the
Beijing Statistics Bureau, as suggested by the participants at the first stage
of questionnaire pre-testing. This survey adopted a key informant ap­
proach, as suggested by previous research (Atuahene-Gima and Li, 2000).
The participants of this survey are either senior managers in charge of HR
or directors/deputy directors of HR, as they are knowledgeable about the
HR and strategy of their firms. The questionnaire was originally prepared
in English and translated into a Chinese version by the author who is bi­
lingual in both languages, then, translated back to English by another bi­
lingual researcher. Comparison of the two English questionnaires re­
vealed considerable consistency across translators, some minor inconsis­
tencies notwithstanding. Before the survey, a three-phase pre-test was
conducted.

13
The sampling method in this thesis included collecting information from a
portion of the population of companies across industries. By investigating
the data collected from the representatives from this population, conclu­
sions and generalisations can be made at this population level.

1.5 Organization of the Thesis

To achieve the research objectives, this thesis is organized into eight
chapters. Chapter 1 introduces the background of this study by giving a
brief review of SHRM and HRM in the PRC, and explains the research
objectives and research questions. It also describes the methodological
considerations of this thesis. Finally, the research contributions are ex­
plained.

Chapter 2 presents a review SHRM research. In this part, theories, prin­

ciples and methodological concerns are reviewed, which followed by a
summaries of new trends in this fields and critics.

Chapter 3 focuses on the evolution of PRC’s HRM. It argues that the

PRC’s economic development exerts impacts on the HRM system and
that HRM in the PRC is undergoing a second round of reform, which
would result in more strategic HRM. Then, it offers a review on the state
of the application of SHRM practices based on the existing literature.

Chapter 4 present a conceptual model of a dynamic SHRM system from a

neo-contingency perspective. Specifically, the author uses contin­
gent-configurational perspective of SHRM modelling, competence and
resource based strategy formulation theory and the strategic role of HR
function construct a SHRM conceptual model. Competence and resource

14
based strategy formulation theory provides a basis on which the interac­
tion or reciprocal influences between variables can be studied. HR plays
both a strategy implementation role and a strategy formulation role in the
SHRM system. Also, it explores the elements and structure of organiza­
tional performance and examines the inter-relationships between these
elements, which can further reveal the process of HRM- performance
linkage.
Chapter 5 is dedicated to the discussion of the philosophical and meth­
odological considerations of this thesis. It provides details of the argu­
ments and justifications for the chosen paradigm, the employed research
design, the chosen research tools and how the research tools are managed.
It also explains the statistical techniques used in data analysis.

Chapter 6 offers the results of the descriptive data analysis. It provides the
demographic results about the surveyed firms and the mean values and
standard deviation of every item used to measure constructs in this thesis.
In doing so, it achieves the basic details about the data, and, more im­
portantly, helps understand the current state of the SHRM practices in
China, as well as the strategies they used and their performance.

Chapter 7 reports the results of data analysis by a series of statistical

methods via the SPSS software package. It commences by presenting the
data preparation and screening procedures which entail the treatment of
missing data, detection of outliers and normality considerations. The next
focus is the test of factorial validity of different constructs of the con­
ceptual model. Finally, it conducts hierarchical regression to test the hy­
potheses in the conceptual model.

15
Chapter 8 presents a discussion based on the findings of this research. It is
comprised of three parts. The first part discusses the factorial validity of
the constructs in this research. The second focuses on the application of
SHRM in China. The third part discusses the results of conceptual model
tests.

Chapter 9 will conclude the research endeavour by presenting a research

summary of the overall study, followed by a summarizing the key findings
and conclusions. Finally, this chapter finishes with a discussion of the
implications, limitations and suggestions for future research.

The next chapter will review the SHRM literature in terms of the devel­

opment of SHRM, the fit in SHRM, the modelling perspectives in SHRM

research, and new trends in SHRM research.

16
 Chapter Two

Strategic Human Re­

source Management

17
Chapter 2 Strategic Human Resource Management

2.1 Introduction
This chapter presents a literature review on SHRM. The chapter is to
conduct a critical review on SHRM literature. Main issues include de­
fining SHRM, relationships between SHRM and HRM, fits in SHRM
framework, Constructs in SHRM, SHRM modelling perspectives, new
trends in SHRM. Criticisms and gaps in literature will be discussed in next
chapter.

This thesis studies SHRM under context of the PRC. To selecting this
particular topic under this particular context can meet the demands of both
the economic development in the PRC and the advancement of the field of
SHRM: on one hand, over three decades of economic reforms and de-
/

velopment, Chinese economy is stepping into the stage o f knowledge

economy and transforming its economy development to a more scientific
and cost-effective model. In this phase of the economic development,
tVi
human resource has been regarded as the first resource. In the 17 con­
gress of the Chinese Communist Party, a people-oriented principle was
established as the centre of the social and economic development model.
Thus, whether the human resource can be developed and utilized effec­
tively at both macro and micro levels is deemed to be the central deter­
minant of the success of the PRC’s development. At micro-level, or or­
ganizational level, humanxapital theory has been widely recognized and
used (Zhao, 2008) and more work on the mechanism of effective use of
human resource has been called for by researches (Zhu, 2008; Cooke,
2009). On the other, as main stream theories of SHRM is of Western
origin, which means the acceptable theories in the field of SHRM were
developed and proved in mainly in Western countries, especially the US.
Brewster (1999) pointed out that theories of SHRM developed in the US
were not generalizable to Europe because of the significantly different
context surrounding HR in the European Union. Some scholars took one
step further and suggested that the validity of these theories is also needed
to be tested under non-western context, especially in transitional econo­
mies, like China and Indian (Budhwar and Sparrow, 2002; Chand and
Katou, 2007, Cooke, 2009). Towards the end of responding to the calls in
both China studies and SHRM studies, this research is decided to focus on
SHRM issues under the context of the PRC.

There are a number of crucial issues to be studied in the field of SHRM in

the PRC, which helps generate the four objectives of this research. First,
to study how the human resources are effectively used in the PRC, the
state of the SHRM applications is to be investigated in this thesis. Second,
in order to test the validity of the Western developed theories in transi­
tional economy, this thesis is aimed to test the theories in SHRM under
Chinese context. Third, as rather than just simple use the specific models
of SHRM developed by Western writers, this thesis aims to use related
theories to build a dynamic conceptual SHRM model, to map how HR
sustainably contribute to organizational performance. Fourth, this thesis is
keen on joining other scholar in solving problems of the lack of supporting
evidence of HRM-performance link, by exploring HRM’s intervening
mechanism on performance, particularly, examining the mediation effect
of HR outcomes and organizational outcomes between HRM and finan­
cial outcomes.

In examining the effects of business strategies on HRM policies, Porter’s

(1985) generic business strategies of cost reduction, quality enhancement
and innovation are used in this research for a number of reasons: first, it

19
has been shown to be a relatively powerful predictor of organizational
effectiveness (Youndt et al., 1996). Second, scholars (Schuler and Jackson,
1987; Schuler 1989) highlighted its implications for HRM policies. Third,
the theory has been commonly used in SHRM research (Guest 1997)

2.2 Defining SHRM

It is very important to summarize what scholars have concluded in SHRM
field. It was concluded that the intellectual roots of the SHRM could be
traced back to the 1920s in labour economics and industrial relations in
the US (Kaufman, 2001). In this time period, the concept of the labour as a
human resource and the strategic view of HRM policy and practice were
described and discussed by scholars (Lengnick-Hall, et al., 2009). Since
the 1980s, a number of influential and innovative perspectives were in­
troduced by authors including Dyer (1984), Schuler and MacMillan (1984)
and Schuler and Jackson (1987). Huselid (1995), MacDuffie (1995) and
Delery and Doty (1996) further added empirical evidence in this field.
Since then, it has been agreed by many authors in SHRM that, first, HRM
is a source of competitive advantage; second, the fit between business
strategies and HRM can generate superior performance, and the fit be­
tween HRM policies and practices generates superior performance;
thirdly, the fit between HRM and the organizational internal and external
contextual factors also lead to a superior organizational performance.
Thus, the basic three relationships are the fit between strategy and HRM,
the one between HRM policies and practices and the one between or­
ganizational contextual factors and HRM. The goal of SHRM is to
achieve superior organizational performance and to fulfil organizational
objectives. Superior performance is used to achieve to objectives. On one
hand, it refers to a concept broader than financial accounting outcomes.

20
As pointed out by Purcell and Kinnie (2007) that there were two funda­
mental problems with the use of financial performance data, first, it is far
removed from HRM interventions- too distal. Second, it takes for granted
that firms seek to structure their HR systems to maximize financial out­
comes, often in the short term seen in shareholder value. On the other
hand, it means a better performance than competitors’ at the least partially
attributing to the contribution of HRM. In this case, the definition of
SHRM by Wright and McMahan (1992, p 298) that SHRM is ‘the pattern
of planned HR deployments and activities intended to enable the firm to
achieve its goals’ has been widely accepted.

2.3 SHRM and HRM

To investigate a specific field of research, it is important to know where it
is located in the broader knowledge context, or the relationship between
this field of interest and the broader context. Thus, the relationship be­
tween SHRM and HRM is first identified. Guest (1997) reviewed the
theories used in HRM researched and the impacts on organizational per­
formance. He summarized theories of HRM into three categories: strate­
gic theories, descriptive theories and normative theories. Strategic theo­
ries are concerned with the relationship between a range of possible ex­
ternal contingencies and HRM policies and practices. The research in­
terests exist in identifying and classifying key environmental influences
on HRM and classifying the types of HR strategy, often drawing on ex­
istent modes of corporate strategy. For example, Miles and Snow (1984)
categorized organizational strategies into four types, and argued that those
firms that have a fit between business strategies, structure and HRM
policies and practices would have a superior performance.

21
Descriptive theories refer to those set out to describe the field in a com­
prehensive way. Guest (1997) employed two cases, the work of Beer et al.
(1985) and that of Kochan et al. (1985), to demonstrate that both of the
cases attempt to capture the broad field and to address certain interrela­
tionships. Beer et al. (1985) listed four broad areas of HRM policy and
practice and four key outcomes. For Kochan and colleagues’, it entailed a
systems approach, describing the interrelations between levels. Guest
(1997) continued on to argue that the strength and weakness in this respect
was the emphasis on an open systems approach which might accurately
capture an element of reality but failed to offer specificity.

Normative theories treat theories and modes in a more prescriptive way,

reflecting the view either that a sufficient body of knowledge exists to
provide a basis for prescribed best practice or that a set of values indicates
best practice. With this approach, popular terms such as ‘high commit­
ment HRM’ and ‘high performance’ work practices can be found. Guest
(1997) also pointed out the problems in this approach. One is that it fo­
cuses mainly on the internal characteristics of HRM at the expense of
broader strategic issues, and advocates a ‘best way’ set of practices while
ignoring the variety of pressures and consequent business strategies. A
second problem is that the related list of HRM practices is far from clear
and awaits either a clear theoretical specification or a much stronger em­
pirical basis.

It is easy to believe that SHRM is underpinned by the strategic theories in

HRM research, focusing on the fit between business strategies, and HRM,
the fit between environmental factors (internal and external ones) and
HRM policies and practices, and believes that fit can generate superior
performance. This is right but incomplete. Actually, SHRM research is

22
underpinned by all of the three types of HRM theories. In considering the
normative theories, HPWS is in fact the way to outperform competitors in
market, via seeking the internal fit between HRM elements, which is one
of the basic arguments of SHRM. Regarding the descriptive theories,
there has been research keen on describing or entailing the application or
mode of SHRM in certain organizational forms (Lepak and Snell, 1998)
or under certain contexts (Braun and Warner, 2002; Zupan and Kase,
2005; Morris et al., 2009).

2.4 Fits in Strategic Human Resource Management

The term ‘fit’ is used frequently in the SHRM literature, and it has been
widely accepted that the effectiveness of HRM policies and practices
depends on the specific organizational and environmental context (Jack­
son and Schuler, 1995). In the definition used in this thesis, SHRM is
treated as patterns. The pattern actually is comprised of HRM elements,
while the fits are the connections between these elements. The fit between
HRM and critical internal and external contingencies is regarded as a
crucial component in the link between HRM policies and practices and
organizational performance (Baron and Kreps, 1999). In SHRM research,
as a wide range of organizational and environmental variables are in­
cluded in researchers’ investigation, there are various types of fits at dif­
ferent levels or in different directions. According to Chenevert and
Tremblay (2009), fits in SHRM can be classified into five categories (see
Figure 2). They are environment fit, vertical strategic fit, internal organ­

izational fit, intra-function HR fit, and intra-activity HR fit. Environment

fit represents the linkage of different HRM policies and practices within
the HRM system and external environment. In line with this argument,
HRM system should be adjusted to the social, cultural, legal and institu­

23
tional characteristics of the environment. Vertical strategic fit stresses the
link between the HR system and business strategies. This type of fit be­
lieves that HRM policies and practices should be adapted in order to
support the fulfilment of organizational strategies. Internal organizational
fit represents the alignment between the HRM system and the other
relevant systems in the organization, such as technology, structure, work
system, production system and organizational culture. Intra-fimction HR
fit denotes the linkage between different HRM policies and practices
within the HR system. Accordingly, the HRM function plays a strategic
role in the firm if the HRM system is highly coherent. In other words,
when individual HRM policies and practices complement and reinforce
on another, HRM can play a strategic role to generate superior organiza­
tional performance. Intra-activity HR fit refers to the coordination of
policies, activities and actions associated with a particular HR activity.

24
 Contingency Contingency
among external among business
environment and strategy and HR Contingency
HR function function among organiza­
tional systems and
HR function

\ Vertical
Environmental strate^
Contingency among
fit \ gic>fit
HR activities
inction
HR fit
Fits in
SHRM
Intra-activii
Contingency among
compensation practices

Figure 2: Fit in SHRM research (source: Chenevert and Tremblay (2009))

Chenevert and Tremblay’s (2009) classification explicitly mapped

framework of SHRM concerned with the fit- performance linkage. This
research will use this classification of fits in SHRM to investigate the links,
which are the fit between HRM policies and organizational contextual
factors, the fits between HRM policies and business strategies, and the fit
between HR policies. Also, interactions between organizational variables,
for example, links between organizational performance and business
strategies and interaction between business strategies and Strategic Role
of HR function, will be used from a neo-contingency perspective to build
a dynamic SHRM conceptual model. This neo-contingency perspective
part will be explained in Chapter 4.

25
2.5 C onstructs or Variables in the Framework of SHRM
According to the four types of fits employed in this research, different
groups of variables or factors are subjected to discussion in this section.
There are four groups of factors under discussion, namely, business
strategies, HRM, organizational contextual factors a nd organizational
performance. In this section, HRM is not included but explained in the
following section, because by doing so, it can review the method of
SHRM modeling as well as entailing HRM variables in SHRM research.

2.5.1 Business Strategy

The term strategy has been a major topic during last two decades among
both academics and practitioners. There has been considerable work on
organization strategy (for example, Miles and Snow, 1984; Porter, 1980,
Wright and Snell, 1991). Most of the concerns in the work of SHRM are
the fit between different HR practices/ bundles and organization strategies
and the impacts of business strategies onto HRM.

2.5.1.1 Miles and Snow’s Typology of Organizations

Miles and Snow (1984) developed four organizational types for classi­
fying different firms, including defenders, prospectors, analyzers and re­
actor. Defenders have relatively narrow and stable product market do­
mains and make few major adjustments in their strategy, structure, tech­
nology or methods of operation. Top managers in this type of organization
are highly expert in their organization’s limited area of operation but tend
to search outside domains for new product opportunities. Because of this
narrow focus, this type of organization seldom needs to adjust their
technology, structure, or methods of operation. Instead, they devote pri­
mary attention to improving the efficiency of their existing operations. Its

26
characteristics include a limited product line and single, capital-intensive
technology, a functional structure; and skills in production efficiency,
process engineering and cost control.

Prospectors constantly search for new product and market opportunities

and experiment with potential responses to environmental trends. These
organizations create changes and uncertainties, to which their competitors
have to respond. Due to the strong concern for product and market inno­
vation, these organizations are always inefficient. Prospectors’ charac­
teristics are a diverse product line, multiple technologies, a product or
geographically divisionalized structure, and skills in product research and
development, market research, and development engineering.

Analyzers tend to be a hybrid of the defender and prospector strategy

types. They operate in both stable and unstable domains and watch
competitors closely for new ideas, adopting only those that seem prom­
ising. Analyzer characteristics include a limited basic product line; a
search for a small number of related product and market opportunities;
cost-efficient technology for stable products and project technologies for
new products; a mixed structure; and skills in production efficiency,
process engineering, and marketing.

Reactors refer to those move slowly, even resist to the idea that there is a
need to move. As reactors are captives of their own past success, they lack
a stable strategic focus and they are not able to cope effectively with ex­
ternal change.

Based on Miles and Snow’s (1984) typology and from a competence

management perspective, Wright and Snell (1991) proposed that: (1)

27
Defenders will emphasize the use of behaviour control, behaviour coor­
dination, and sustained competitive advantage competence utilization
strategies relative to the other strategies. (2) Prospectors will emphasize
competence acquisition, behaviour coordination, and competence dis­
placement strategies relative to the other strategies. (3)Analyzers will
emphasize competence acquisition, competence retention and behaviour
coordination relative to the other strategies in a newly developed market,
and they will emphasize behaviour control, competence utilization, and
competence retention strategies relative to other strategies in a mature
market.

2.5.1.2 Directional Strategies

According to the work of Wright and Snell (1991), organizations could be
either growing, or maintaining, or retrenching in a particular market.
Recognizing the different directional strategies of organizations, can help
to understand the different needs of organization in various stages of de­
velopment. In the growing stage, an organization needs to acquire new
competences to facilitate growth. Risk-taking on projects is modest. There
is a constant dilemma between doing current work and building support
for the future. Policies and procedures are starting to be written as there is
need for more control and structure for an ever expanding operation.

Organizations with a maintaining strategy exist at a more mature stage of

the product life cycle, and thus have much more experience dealing with
the manufacturing process and the environment. The focus here is on
maintaining existing profit levels. Modest cost cutting efforts and em­
ployee terminations may occur. Control systems and structure are well
developed along with an extensive set of policies and procedures.

28
Finally, in a retrenchment strategy, organizations undergo major layoffs
and need to displace employees whose competences are the least valuable
to the organization. Meanwhile, with the reduction of employees, re­
maining employees have to assume tasks and responsibilities which they
did not do previously. Here, companies focus on saving the operation.
Although cost cutting efforts and employee reductions are made, they are
short-term programmes for long-run survival. Worker morale may be
somewhat depressed.

Based on variety of competence needed in different development stage

HR strategies and HRM policies and practices should be adjusted ac­
cordingly. (1) Organizations in the growing stage will emphasize com­
petence acquisition and behaviour coordination strategies relative to other
strategies. (2) Organizations in the maintaining stage will emphasize
competence retention and behaviour control strategies relative to other
strategies, (3) Organizations in the retrenchment stage will emphasize
competence displacement and competence utilization strategies relative to
other strategies (Wright and Snell, 1991).

2.5.1.3 Competitive Strategy

According to Porter’s (1985) generic competitive strategies, Schuler
(1987, 1989) presented a typology of competitive strategies, including
innovation, quality enhancement and cost reduction, is very useful. The
innovation strategy emphasizes developing products and services that are
different from those of competitors. Overall, for companies pursuing an
innovation competitive strategy, the profile of employee role behaviours
includes (1) a high degree of creative behaviour, (2) a longer-term focus,
(3) a relatively high level of cooperative and interdependent behaviour, (4)

29
a moderate degree of concern for quality, (5) a moderate concern for
quantity, (6) an equal degree of concern for process and results, (7) a
greater degree of risk taking, and (8) a high tolerance of ambiguity and
unpredictability. Thus, an innovation strategy needs people to work dif­
ferently (Schuler and Jackson, 1987).

A quality enhancement strategy focuses on improving product and service

quality. The essence of a quality strategy is to get employees committed to
quality and continuous improvement in order to increase product reli­
ability and customer satisfaction (Garvin, 1993, Ding and Ashtar, 2001).
The process of enhancing quality requires broadened employee respon­
sibilities, such as troubleshooting, problem solving, quality assurance
planning, scheduling, maintenance, and so on. Schuler and Jackson (1987)
described the profile of employee behaviours, for quality enhancement
strategy, which includes (1) relatively repetitive and predictable behav­
iours, (2) a more long-term or intermediate focus, (3) a modest amount of
cooperative, and interdependent behaviour, (4) a high concern for quality,
(5) a modest concern for quantity of output, (6) high concern for process
(how the goods and services are made or delivered), (7) low risk-taking
activity, and (8) commitment to the goals of the organizations.

A cost-reduction strategy attempts to be the lowest cost producer to gain a

competitive advantage. Organizations pursuing a cost-reduction strategy
emphasize efficiently managing a low-skilled workforce (Youndt, et al.,
1996), and implement tight controls, overhead minimization, and the
pursuit of economies of scale. The central focus of these measures is to
increase productivity, that is, output cost per person. This can be achieved
by reduction in the number of employees and/or a reduction in wage levels.
Other options to realize the cost-reduction is increasing the use of

30
part-time employees, subcontractors, work simplifaction and measure­
ment procedures, automation, work rule changes, and job assignment
flexibility. The profile of employee role behaviour are as follows: (1)
relatively repetitive and predictable behaviour, (2) a rather short-term
focus, (3) primarily autonomous or individual activity, (4) modest concern
for quality, (5) high concern for quantity of output (goods or services), (6)
primary concern for results, (7) low risk-taking activity, and (8) a rela­
tively high degree of comfort with stability (Schuler and Jackson, 1987).

Wright and Snell (1991), based on HR open systems and HRM compe­
tence theory, proposed that: (1) the companies using innovation competi­
tive strategy are more likely to use competence acquisition, competence
displacement and behaviour coordination; (2) the companies using quality
competitive strategy are more likely to use competence retention, com­
petence utilization and behaviour control; (3) the companies using
cost-coordination competitive strategy are more likely to use competence
retention, competence displacement and behaviour control. Due to the
applicability and empirical support, this research employs Porter’s (1985)
typology of business strategies.

2.5.2 Organizational Performance

Organizational performance is the focal outcome in most research in
SHRM. The first conceptual models explicating the relationship between
HRM and performance are probably the classic models of Beer et al.
(1985) and of Fombrun et al. (1984). Beer et al. (1985) linked HRM policy
choices first of all to HRM outcomes, which in turn had an effect upon
long-term consequence and cost effectiveness. Long-term consequences
were subdivided into individual well-being, organizational effectiveness,

31
and societal well-being. Fombrun et al. (1984) developed the so-called
HR cycle, in which four crucial HRM policies and practices, selection,
rewards, appraisal, and training and development, contribute to per­
formance at both individual and organizational level.

When focusing on organizational performance, it is crucial to explore its

internal structure; particularly the intermediating factors within the link
between HRM and organizational performance. Guest (1987) developed a
normative model, identifying four policy goals: integration, employee
commitment, flexibility/adaptability, and quality. In this model these
goals serve as HR outcomes; goals and policies together generate a range
of organizational outcomes such as high job performance and low turn­
over. Thus, there are four sub-constructs of organizational performance in
this model, HRM outcomes, behaviour outcomes, performance outcomes
and financial outcomes. Becker et al. (1997) presented a conceptual model
of the HR-shareholder value relationships. Five sub-constructs were in­
volved in this model, namely, employee skills/motivation/job design and
work structure, productivity/ creativity/ discretionary effort, improved
operating performance, profits growth and market value. Dyer and Reeves
(1995) proposed four possible types of measures of organizational out­
comes: first, HR outcomes such as turnover and productivity; second,
measures such as productivity and service quality; third, financial ac­
counting outcomes such as return on asset and profitability and, finally,
capital market outcomes such as stock price and market growth. The
structure or the relationships between element of organizational per­
formance were discussed by several scholars, including Becker and
Gerhart (1996), Becker and Huselid (1998) and Roger and Wright (1998).
The most complete explanation of the structure of HR-performance was
conducted by Dyer and Reeves (1995), Colakogu et al. (2006), who

32
suggested that outcome measures may be ordered from proximal to distal,
with employees as an anchor. Accordingly, HR outcomes would be the
most proximal, and this leads to organizational outcomes. Then, organ­
izational outcomes lead to financial outcomes and ultimately to market
outcomes.

2.5.3 Organizational Contextual Factors

It has been argued that the organizational contextual factors should be
incorporated when studying HRM practices, HRM policies and HRM
philosophies (Jackson and Schuler, 1995; Boxall and Purcell, 2008;
Paauwe, 2008). As Budhwar and Aiyee (2008) pointed out, the main
considerations concerning the organizational contextual factors are what
the influence of economic technological and sociopolitical factors on
HRM strategies are, and what the links between organizational contin­
gencies and HRM strategies are. The following section will present a re­
view on the different contingencies in SHRM research. Generally, or­
ganizational contextual factors are divided into an internal group and an
external one. Internal organizational context factors include ownership,
age and size of firm, internal technology, competitive strategies, organ­
izational structure, life-cycle, and union presence. The external organiza­
tional context factors include technology change, industry characteristics,
intensity of competition, labour market conditions, political, law and
regulation, unionization, life-cycle, location and culture (Jackson and
Schuler, 1989; Jackson and Schuler, 1995; Fields, et al. 2000; Ding and
Akhtar, 2001; Boxall and Purcell, 2008).

2.5.3.1 Internal Organizational Context Factors

Ownership:

33
Since the implementation of an open door policy, the PRC has gained a
vast volume of foreign investments in various forms. There are an in­
creasing number of MNCs launching their businesses in the PRC. Some of
the MNCs set up branches, while others found local partners and formed
Joint Ventures. In this case, the ownership system in the PRC has been
changed dramatically. Currently, there are several types of ownership in­
cluding State Owned Enterprise (SOE), Private Owned Enterprise (POE),
Collective Owned Enterprise (COE), Joint Venture (JV) and Foreign
Owned Enterprise (FOE) (Cooke, 2005). FOEs were empowered to de­
termine the size of their staff, recruit senior managerial and technical
personnel through the external labour market according to business need,
to design reward systems based on performance, and to provide training
and use incentive schemes to retain key personnel (Bjorkman and Lu,
1999; Verburg, 1996). As the local policies grant FOEs and JVs a series of
priorities when they operate in the PRC, foreign ownership is an important
factor to succeed in the PRC. Additionally, FOEs or JVs may be seen as
outsiders compared to locally based firms, and due to the highly collective
nature of locally Chinese firms and the traditional emphasis on relation­
ships networks, known as guan xi, FOEs and even JVs may find it difficult
to compete with local firms (Wright, et al. 2002). SOEs, which used to be
dominant force in Chinese economy, went through a series of reforms, by
reducing governmental interventions and increasing firm-level autonomy.
But compared with non-SOEs, they were still hindered by the internal
inertia and governmental interventions.

To sum up, although all types of ownership of firms coexist in one market,
their perceptions and the received influences are different. On the other
hand, differences of ownership result in the differences of organizational
internal structure and operational features.

34
Size
Firm size might have an influence on the choice of HRM policies and
practices, particularly in the pace of change in HRM policies and practices.
Due to the size of their workforce and cumbersome organizational struc­
tures, large firms encounter greater organizational inertia that negatively
affects the pace of change (Ding and Akhtar, 2001). Larger companies
have more complete and sophisticated HRM systems, and more extensive
HRM policies and practices, because they have more workers to control.
So, it seems larger companies may meet more barriers in changing HRM
policies and practices than smaller ones. Nevertheless, the larger compa­
nies have to emphasize retention, as the middle managers can be pursued
by smaller companies as senior management, to compete with larger
companies and undermine the larger companies’ market position (Fields
at al., 2000). Jackson et al (1989) pointed out that large companies are
different from small companies in three aspects. First, jobs in large
companies are generally more specialized and more complex. Second, the
type of supervision used in large companies differs from the one used in
small companies. In small companies, direct interactions between super­
visors and employees are most frequently used. By contrast, indirect,
formalized supervision is utilized in large companies. Last, the presence
of an internal labour market is different from large companies to small
ones. Large companies present a series of career stages for employees,
including entry through low-level jobs, internal promotion, career paths,
rewards for seniority, and formal grievance procedures.

Age
According to institutional theory, organization practices can be institu­
tionalized through an imprinting process whereby the practices adopted at
the beginning of the organization’s history remain embedded in the or­

35
ganization (Wright and McMahan, 1992). Nevertheless, as companies
suffer from inertia, the longer a company exists, the harder it is for a
company to implement reforms and adopt new practices. The age of the
company, in the Chinese context, is found to be correlated to ownership
type: most SOEs have a longer history than FOEs or JVs (Ding and Ak-
htar, 2000). Thus, a long company history implies more traditional per­
sonnel management practices, more deeply embedded institutional habits
and greater barriers to change towards the SHRM system. This feature is
more obvious in the long-transitional economy, as firms set up at different
stages of the transition must be constrained and shaped by the context of
each time period, and the context keeps changing during the transition. In
other words, in a long-transitional economy, firms of different ages were
bom of different contexts.

Internal Technology
When studying HRM in manufacturing organizations, Jackson et al. (1989)
suggested that the level of internal technology should be used as a de­
terminant of HRM. Budhwar and Sparrow (2002) also pointed out that, in
spite of popularity of using this variable as a culture-free factor forging
HRM in cross-culture studies, the internal technology’s influence on
HRM should be contingent on culture.

Organizational Life Cycle

An organization’s life cycle may influence choice of HRM because or­
ganizational needs for human resources may change as companies move
through start-up, growth and maturation phases (Jackson and Schuler,
1995). Fields et al. (2000) discussed the ambiguity of the implications of
life cycle. In other words, organizations at same stage of the organiza­
tional cycle might employ different HR strategies. For example, growth

36
means expanding opportunities. Growing companies might use an HRM
strategy that emphasized securing and nurturing managers as they need
more managers to oversee employees. Alternatively, as growing compa­
nies already have some competitive advantage that is responsible in some
part for their growth, they may be less concerned with building sustained
competitive advantage in the capabilities of managers.

2.5.3.2 External Organizational Context Factors

Location
The PRC’s coastal and southern regions are more open than the middle
and western areas. The openness of an area within which the organization
operates may influence the choice of HRM policies and practices. For
example, in the western region, the lack of exposure to modem HRM
systems and practices led to a general pattern of conservative HRM
practices in terms of recruitment, rewards and the role of personnel de­
partment (Fields et al., 2000). Also, the competitive position of companies
might be influenced by the high costs of being located and doing business
in the PRC. Some areas of the PRC are more costly than others to run a
business, because of the lag of transportation construction, and the high
training costs for low-skilled or non-skilled workers. Lastly, the com­
paratively poor situation of a local market causes higher costs in seeking
customers.

Technology Change
A critical issue affecting HRM strategies is the extent to which the com­
pany must anticipate rapid technological change (Dean and Sussman,
1989). In Fields et al’s (2000) work, they found that technological change
exerted a significant positive influence via the centrality of the HR de­
partment.

37
Industry Characteristics
The term industry refers to a distinctive group of productive or
profit-making enterprises. Jackson and Schuler (1995) summarized pre­
vious work about industry characteristics and proposed a framework to
compare HRM between the private or public sectors, between regulated
and unregulated industries, and between stable and changing industries.
Recently, the dynamics of industry-based competition has been recom­
mended to be included in SHRM to explore how HRM supports business
viability and how might it be a basis for sustained advantage as firms
grapple with change in their industries.

Boxall and Purcell (2008) portrayed industry revolution with a

three-phase cycle, the establishment crisis, maturity, renewal crisis and
argued that, first, firms in a industry in the establishment crisis required
talented entrepreneurs (teams) and a s tabilized and well coordinated
workforce. Second, firms in a mature industrial context needed greater
sophistication while enduring principles. In this case, HR can offer ad­
vantages through HR planning, improved management understanding of
HRM and consistency of HR practices. Actually, the mature context is the
situation which appears in most research and textbooks. Lastly, in the
renewal context, referring to the industrial situation that challenging the
continuities built up over the establishment and mature phase, only the
firms dominating the direction of change and the firms adapting to the
direction of change can survive. In this phase, firms require HRM to im­
prove organizational agility/ flexibility (for example, see Dyer and Shafer,
1999).

In this research, the author adopts a business sector perspective, which

differentiates firms according to the difference of their main business

38
services or products, rather than industry sectors, and the business sector
measures the variation of industry environment more precisely. Also, this
approach has been used in previous work and proved valid (Akhtar, et al.,
2008). Manufacturing industry consists of a number of business sector,
including electronics, garments, engineering and chemicals, and phar­
maceuticals, while the service industry involves insurance and banking,
import and export trading, and retailing (department stores) and business
services.

Intensity o f Competition
Intensity of competition might influence the HRM of companies. The
more a firm perceives that competition from other companies is a threat to
achieving its objectives, the greater the value the firm may place on cre­
ating sustained competitive advantage (Lado and Wilson, 1994; Kamoche,
1996; Fields, et al. 2000). Fields et al (2000) employed intensity of
competition into a study of influences of organizational context factors on
HRM strategy in Hong Kong’s companies. They found out that this
variable did play an influencing role in the adoption of HRM strategy.

Labour Market Conditions

Labour market conditions can be characterized along several dimensions
including unemployment level, labour diversity, and labour market
structure (Jackson and Schuler, 1995). Unemployment levels reflect the
demand for labour relative to the supply. Macroeconomic research con­
ducted at the national level indicated that excess demand typically results
in low unemployment while excess supply typically results in high un­
employment. Then changes of unemployment levels trigger the corre­
sponding changes of wage level, employment turnover rate, absenteeism,
profit and investment (Markham, 1985; Carsten, and Spector, 1987).

39
Meanwhile, a series of changes in law in the PRC (Labour Law 1994,
Labour Contact Law 2007 and New Bankruptcy Law 2007) have led to a
fast-growing and floating labour force within a free but plural market, as
different standards have been applied (Zhu, 2005; Warner, 2008). Cou­
pled with the increase of discretion in recruitment and selection in Chi­
nese organizations, the grounds for establishing a mechanism of HR
strategy to support organizational strategies are levelled.

Legal and Political Environments

In the US, almost all aspects of HRM are affected by the legal and regu­
latory environment, specifically, acts, labour law, tax codes, and so forth
(Jackson and Schuler, 1995).

Political risk delineates the likelihood that political forces will cause
drastic changes in a country’s business environment that will affect the
profit and other goals of a particular enterprise (Robock and Simmonds,
1989, p378). The political risk can affect the adoption of HR practices,
like control system (Ferris and Judge, 1991).

Currently, in the PRC, the construction of socialist legalization is in pro­

gress. The increasingly completed legal system will conduct better regu­
lations on the companies in the PRC. Political stability has attracted a vast
volume of FDI, and encouraged the development of local companies since
the end of the 1970s. The stable political environment will facilitate the
implementation of HRM policies and practices at company level.

Unionization
There are many empirical studies, which have found that unionization is a
critical factor influencing HRM. In general, on one hand, the literature

40
examining the impact of trade union activity suggests a positive effect on
the adoption of innovation SHRM practices (Ng and Maki, 1994; Chen,
2007; Som, 2007). On the other hand, it has been suggested that the
presence of an active labour union in companies restricts HR managers to
be innovative in their process (Ramaswamy and Schiphorst, 2000).

ACFTU is still the key institution here, with over 150 million members,
15 industrial unions and 1.2 million local branches (Warner 1996; Warner
and Ng 1999; Warner 2008). One of the major priorities of the ACFTU is
to encourage foreign-funded or multinational companies to unionize and
sign agreements. To date, however, only about 26% of PRC’s 150,000 or
so overseas-funded firms have set up trade unions and only around 4
million new members have signed up (People’s Daily, 9 August 2006, p.
1). Many overseas multinational corporations remained hostile, fearing
that it would increase labour costs and reduce labour flexibility if firms
were required to limit the use of temporary workers and seek approval
from the trade unions before dismissing workers (Financial Times, 2 May
2007, p. 1).

Culture
The most widely known framework for comparing national cultures is the
one developed by Hofstede (1980), who identified four dimensions of
culture: individualism, masculinity, uncertainty avoidance, and power
distance. Jackson and Schuler (1995) pointed out that empirical studies
seldom included direct measures of both culture and HRM. Instead, re­
searchers generally have compared HRM across countries and then ar­
gued that cultural values and orientations are determinants of the differ­
ences found. As a response to Jackson and Schuler’s call, Chow and Liu
(2007) employed Wallach’s (1983) typology of corporate cultures to

41
measure the corporate culture and test the impacts on organizational
performance. Wallach (1983) divided corporate culture into three types:
bureaucratic culture, innovative culture and supportive culture. They
found that corporate culture not only showed direct effects which is or­
ganizational performance but also moderated the impacts of HRM to or­
ganizational performance. Due to globalization, MNCs are increasing
prevalent in the world. It is widely accepted that MNCs must understand
the cultures of the regions in which they operate in order to effectively
manage their human resources.

This is especially the case of the PRC, as it is the second largest FDI re­
cipient in the world, and the PRC has been increasingly attractive for
MNCs to launch or enlarge their business in it (Cooke, 2005). Knowledge
of Chinese culture is crucial now, the Confiician philosophies, especially
Ren (benevolence), Yi (right conduct), Zhong (loyalty) and Li (propriety
and good manners), have formed the foundation of Chinese culture. Ad­
ditionally, the educational system in Chinese schools organizations, and
society at large are characterized by active disseminations of ‘Hao Ren
Hao Shi’ (good people and good things) and open criticism of ‘Huai Ren
Huai Shi5 (Bad People Bad Things) (Rotundo and Xie, 2008). Hu Jintao,
the president of PRC, recently declared the importance of developing an
‘advanced socialist culture5 at the Tenth National Meeting of the Chinese
People's Political Consultative Conference. Specifically, Hu highlighted
the importance of ‘eight honours5 and ‘eight shames5which was claimed
to be the essence of the socialist value system (China Daily, 2006). Wong
and Star (2000) summarized previous research findings about Chinese
workplace culture into four aspects, including the importance of face, the
respect for hierarchy, the importance of collectivism and the importance
of harmony. Also, the term ‘Guanxi5referring to the personal relationship

42
network, which is one of obvious Chinese characteristics, matters sig­
nificantly in business (Wright, et al., 2002). The distinctive cultural
background, coupled with the complexity of the local situation, creates
many difficulties that MNCs have to deal with when operating in PRC. So
the cultural factor is included in this research.

At organization-level, workplace culture is a crucial factors influencing

HRM practices. Workplace culture impacts the transfer of HRM practices
(Huo and Glinow, 1995), creation of business relationships (Fletcher and
Fang, 2006) and specific HR practices (Bozionelos and Wang, 2007).
These researchers suggested that workplace culture in China or Confucius
countries should contain: the extent the people embracing paradox at
workplace, the directness of interpersonal approach, the importance of
saving face (mainzi) and respect for position authority, and Confucian
work values in general.

The definition and scope of the concept of culture is, of course, debatable
(Tayeb, 1994), It is therefore sensible to examine the impact of those as­
pects of national culture on HRM, which have a sound theoretical base. As
suggested by Budhwar and Sparrow (2002) the one of the most important
processes or ‘influence mechanisms’ attributed to national culture that
have been identified was the unique ways of doing things and manage­
ment logics in a particular country, which are reflective of the broader
national business system (Sparrow and Hiltrop, 1997; Whitley, 1992).
Culture is usually used as a key determinant of HRM in cross-culture and
or cross-country studies to highlight the culture-related characteristics. In
this research, the sample firms were located in culture system thus their
share same national culture. But, at firm-level, it has been recognized that
culture, especially Chinese workplace culture, varies across ownerships

43
and industries. So, it is sensible to examine the effects of workplace cul­
ture on HRM policies, and the relations between organizational variables.
Following this sense, the moderating effect of workplace culture on the
relations between organizational variables and HRM policies are exam­
ined.

As to the selection of control variables, Budhwar and Sparrow (2002)

based on the existing literature developed an integrative framework of
factors determining the HRM practices. They categorized these factors
into fives broad groups: national culture, national factors, contingent
variables, organizational strategies and policies and HR strategies and
policies. They contended suggested that national culture and national
factors influenced HRM practices through contingent variables, including
size, ownership, age of organization, life cycle of organization, union
status. As to industry sector/ business sector, it was nation states contain
unique configurations of industrial/business sectors, which over a period
of time based on the functional requirements of the sector and the re­
gional/national characteristics such as culture and dominant institutions of
the geographical area(s) in which a particular is sector based, develop and
practices ‘sector-specific’ HRM policies and practices (Budhwar and
Sparrow, 2002). Additionally, these factors have been used as valid de­
terminants of the HRM policies and practices under Chinese context.

To sum up, this thesis will employ the variables, including organization
life cycle, organizational size, organizational age, ownership, industry
(business sectors), presence of trade union and Chinese workplace culture.

44
2.5.4 HR Roles in SHRM
It has been argued that strategic HRM meant that (1) HR are involved in
strategic decision-making board of organizations, and (2) HR devolved its
activities to line managers and HR subcontractors (Budhwar and Aryee,
2008). Barney and Wright (1998) contended that if the HR function were
allowed to play a strategic role in organizational decisions, HR could be a
source of sustained competitive advantage. There is a considerable lit­
erature suggesting that the strategic role of the HR function is critical to
developing and aligning HRM policies and practices in a way that sup­
ports a firm’s chosen strategy (Wright and Snell, 1991; Snell, 1992;
Taylor et al., 1996; Schuler and Jackson, 1999; Ding and Akhtar, 2001).

It is worthy to note that the strategic role of HR function is not just

strategy implementation, which can be explained by Allen and Wright’s
(2007, p91) statement: ‘HR was seen to play only a secondary role in the
accomplishment of strategy with an emphasis in the role that HRM played
in strategy implementation, but not strategy formulation’. Specifically, the
extent to which the human resources function plays a central role in key
business decisions may affect the likelihood that a firm uses a human
capital development HR strategy for competitive advantage. In essence,
the centrality of the HR function in the top management team may de­
termine the extent to which other top managers in a firm see major un­
certainties as being solved through the development of competitive ad­
vantage in the unique capabilities of managers. In addition, some other
organizational contextual factors may affect HRM strategy because the
human resource function occupies a central management and policy role.
Empirical studies on SHRM point to the importance of aligning HRM
policies and practices with competitive strategies by making the HR
function central to the organization. In this sense, the strategic role of the

45
HR function may serve as an intervening contextual variable (Ding and
Akhtar, 2001).

In this research, the strategic role of HR is studied from two perspectives.

The first perspective is the strategic role of HR function in strategy for­
mulation, as recommended by Allen and Wright (2007), to explore how
HR contributes to the formulation of strategy. The other role of HR, the
strategic role of HR function in strategy implementation, is recognized as
a factor that will mediate the influence of contextual variables, 1 ike
business strategies, on the choice of HRM policies.

2.6 HRM and the Perspectives of SHRM Analysis and Model­

ling
In this research, the SHRM practices and policies refer to those HRM
policies and practices which can create competitive advantage to meet the
strategic need of companies. Many writers in SHRM have studied the
typology and interpretation of SHRM practices (Miles and Snow, 1984;
Schuler and MacMillan, 1984; Schuler and Jackson, 1987; Wright and
Snell, 1991; Schuler, 1992; Huselid, 1995; Delery and Doty, 1996; Roger
and Wright, 1998; Ding and Akhtar, 2001; Lepak and Snell, 2002).

The HRM are studied from both vertical and horizontal dimensions.
Vertically, HRM is studied at different levels ranking from HRM phi­
losophy to HRM policies and practices. Horizontally, the focus of HRM
in SHRM studies is to place the different arrangement patterns of HRM
policies and practices. Vertically, Schuler (1989, 1992) portrayed a HRM
hierarchy with five levels in it, known as the 5-p model. In this model,
strategic HRM activities are seen from the level of HR philosophy, HR
policies, HR programmes, HR practices and HR processes.

46
HR philosophy is a statement of how the organization regards its human
resources, what role the resources play in the overall success of the
business, and how they are to be treated and managed. HR policies pro­
vide guidelines for action on people-related business issues and for the
development of HR programmes and practices based on strategic needs.
HR programmes represent coordinated HR efforts specially intended to
initiate, disseminate and sustain strategic organizational change efforts
necessitated by the strategic business needs. HR practices can fall into
three categories: leadership practice, managerial practice and operational
practice. In each case, behaviour associated with a given role should
support strategic needs. Finally, HR processes deal with the formulation
and implementation of other activities, and HRM should meet the or­
ganizational needs at different levels.

Schuler (1989) continued to explore the typology of HR philosophy. He

came up with three types of HR philosophies: accumulation, utilization
and facilitation. The first one, accumulation , means the policies and
practices of attracting many good candidates very carefully and very
consistently, often more on the basis of personal fit than technical fit. The
lack of technical skills can be filled by in-house training after recruitment.
This takes a longer term view of human resource management; training
costs a great deal of money and its benefits are likely to be reaped only
after several years. The underlying rationale is that the world is constantly
changing and new skills are needed all the time.

The second HR philosophy is called utilization , referring to the case that

personal characteristics are important, individuals are generally selected
with attention to technical skills. Consequently, once employed, indi­
viduals can begin working with relatively little training. This shorter-term

47
view of HRM saves on training costs and allows organizations to put in­
dividuals into vacant positions with relatively little long-range planning.
In this respect, the practice of recruitment on the basis of technical fit is
very efficient and allows for rapid response and adjustment. However, as
utilization rests on the policy of employment-at-will and relevant skills
and organizational need, any hiring is presumed to be at will; that is, the
employer is free to discharge individuals for good cause, or bad cause, or
no cause at all, and the employee is equally free to quit, strike, or other­
wise cease work.

Facilitation , the last philosophy presented, recognizes that it is important

that individuals work together in close reciprocal interaction, while tech­
nical skills are necessary for individuals. Employee development is val­
ued and facilitated, other than provided, by organizations. In this case,
‘individuals become valuable to the organization and to themselves,
consequently, organizations practicing facilitation seek to wed their em­
ployees into the organization and very much in a non-coercive manner’
(Schuler, 1989, p i 66).

Horizontally, research in SHRM focuses mainly on what HRM policies

and practices and what patterns of the HRM policies and practices can
better support the business strategies and lead to superior performance.
There are mainly three approaches in SHRM studies. They are the uni­
versalis tic, configurational, contingency (Delery and Doty, 1996), and
contingent-configurational approaches (Lepak and Shaw, 2008).

Universalistic arguments are the simplest form of theoretical statement in

the SHRM literature. The logic of this perspective is that there is, or
maybe, strategic value in certain individual HRM practices (Lepak and

48
Shaw, 2008). Researchers using this approach believe that the relationship
between a given independent variable and a dependent variable is uni­
versal across the population of organizations. There are two steps to de­
velop universalistic predictions: first, identifying important strategic HR
practices and, second, presenting arguments that relate the individual
practices to organizational performance. Perhaps the most well known
universalistic perspective is provided by Pfeffer (1995). Based on a re­
view of what successful companies do with regard to HRM practices, he
concluded that certain practices should be more universally effective than
others, including employment security, selectivity in recruiting, high
wages, incentive pay, employee ownership, information sharing, partici­
pation and empowerment, self-managed teams, training and skill devel­
opment, cross-utilization and cross-talking, symbolic equalitarianism,
wage compression and finally promotion from within. Strategic HR
practices include internal career opportunities, formal training systems,
appraisal measures, profit sharing, employment security, voice mecha­
nisms and job definition. The universalistic predictions are consistent with
the notion that greater use of specific employment practices will always
result in better (or worse) organizational performance (Delery and Doty,
1996). In short, there is some evidence that certain HRM practices are
better than others in terms of exhibiting a positive relationship with im­
portant organizational indicators of performance. However, this perspec­
tive is criticized by failing to consider: (a) what other practices are in place,
and (b) the context in which these practices are used, which lead to the
contingency and the configurational perspectives.

Configurational arguments are more complex than the universal approach

for several reasons. Configurational theories draw on the holistic principle
of inquiry to identify configurations, or unique patterns of factors, that are

49
posited to be maximally effective. In a configurational view, Organiza­
tional characteristics tend to commonly occur together and form coherent
patterns to affect organizational performance. In other words, the con­
figurational approach is concerned with how the pattern of multiple in­
dependent variables is related to a dependent variable rather than how
individual independent variables are related to the dependent variable
(Delery and Doty, 1996). Some configurations are assumed to be ideal
types that are theoretical constructs rather than empirically observable
phenomena. As the configurational approach needs to identify distinct HR
systems, which include internally consist HR practices, to manage em­
ployment relationships, it is consistent with concepts of ‘vertical’ and
‘horizontal’ fits (Wright and McMahan, 1992). Perhaps the most well
known configurational study was conducted by Huselid (1995). Huselid
(1995) demonstrated that a system of HRM practices he labeled a high
performance work system (HPWS) was positively and significantly as­
sociated with important organizational outcomes.

Delery and Doty (1996) provided two typical kinds of employment sys­
tems: a market-type system and an internal system. The market-type
system was characterized by hiring from outside an organization, pro­
viding little training, and evaluating performance through the use of re­
sults measures. Employees who worked under this system were com­
pensated or rewarded for individual performance as measured by the
output measures. Little job security and voice were granted to the em­
ployees. The internal system was characterized by the existence of an
internal labour market. Extensive socialization and training were common.
Performance was assessed through behaviour, and appraisal feedback was
given for developmental purposes rather than evaluative purposes. A high
degree of employment security existed. Lepak and Snell (1999, 2002)

50
identified four configurations of HRM practices: commitment-based,
productivity-based, compliance-based and collaborative-based HRM
systems that were used for different groups of employees within organi­
zations depending on their relative strategic value in contributing to or­
ganizational objectives.

Contingency arguments, known as the ‘best fit5 school, are also more
complex than universalistic arguments, as this perspective emphasizes the
interactions between business strategies and HRM policies and practices
and argues the impact of HRM on organizational performance is condi­
tioned by an organizations strategic posture. In other words, the contin­
gency perspective posits that HRM will more effectively enhance organ­
izational performance when it is appropriately integrated with specific
organizational and environmental contexts. It also indicates that HRM
policies and practices in isolation (universalistic) or in combination
(configurational) will be maximally effective only under certain situ­
ational conditions (Lepak and Shaw, 2008). There are two types of con­
tingency relationships. The first concerns the influence of various con­
tingencies on single HRM policies and practices. The second type focuses
on whether the use and effectiveness of HRM systems depend on some
contingency. This type is called contingent configurational perspective by
Lepak and Shaw (2008). In other words, universal ‘best practices5provide
a solid foundation of SHRM activities, but to achieve a higher level of
performance, contingent factors should be considered (Lengnick-Hall,
2009). This research, to avoid confusion, names the first type of contin­
gency perspective of Lepak and Shaw (2008) contingency perspective,
while the second type contingent-configurational perspective. This re­
search will adopt the contingent configurational perspective to investigate
the SHRM in PRC.

51
2.7 Main Trends in SHRM Research
Lengnick-Hall et al. ’s (2009) theme-based review
Lengnick-Hall et al. (2009) summarized the literature of SHRM into
seven main themes: including (1) exploring contingency perspective and
fit, (2) shifting from a focus on managing people to creating contributions,
(3) elaborating HR system components and structure, (4) expanding the
scope of SHRM, (5) achieving HR implementation and execution, (6)
measuring outcomes of SHRM and (7) evaluating methodological issues.
They summarized that during the embryonic stage of SHRM, three themes
emerged: initial studies emphasized contingency perspective and fit in
order to tie human resource policies and practices to various strategy
elements. Over time, this stream of inquiry expanded to include compet­
ing frameworks for assessing fit and an assessment of different contexts as
contingent factors. The second stream of inquiry according to Leng­
nick-Hall et al. (2009) referred to the emphasis of HR as a source of im­
portant strategic contributions versus a focus on people management.
Over time, this stream expanded to include human and capital contribu­
tions and HR in increasingly complex systems. A third area of research
concerned expanding the scope of SHRM activities beyond conventional
organizational boundaries. Over time, the focus of this stream shifted
more toward international SHRM concerns. In 1990s, two additional
streams emerged. One stream elaborated the structure and components of
HR systems. The other line of research emphasized the importance of
effective execution of HR policies and practices and ensuring that the
strategic intent is realized. Later in the 1990s, as the field became estab­
lished, a greater concern with measuring the outcomes of SHRM activities
emerged. Since 2000, as the field has matured, methodological issues and
questions have gained increasing attention.

52
Guest’s (2011) review o f the development o f SHRM fie ld
Guest (2011) concluded the development of SHRM field into six devel­
opment steps: namely, the beginnings, empiricism, backlash and reflec­
tion, conceptual refinement, bringing the worker centre-stage, growing
sophistication and complexity. The step of the beginnings presented the
promise of HRM in the form of semi-prescriptive analytic frameworks
alongside somewhat anecdotal cases that appeared to confirm this promise
of an association between HRM and performance. The classic work at this
step includes Beer et al. (1984), Fombrun et al. (1984), Miles and Snow
(1984), Schuler and Jackson (1987) and so on.

The second step was empiricism, which occurred in the 1990s and char­
acterised by the used of empirical data via survey-based research. The
seminal paper was presented by Huselid (1995). Equally significant pa­
pers were Arthur (1994) and Ichniowski et al. (1997), MacDuffie (1995),
and Delery and Doty (1996). They all indicated that the adoption of more
HR practices was associated with higher performance and in so doing
began to provide an evidence-base for the calling about a link.

The step of empiricism was followed by a third step called ‘backlash and
reflection’ by Guest (2011). In this step, researchers realized that the rush
to empiricism had occurred at the expense of sufficient consideration of
some key conceptual issues, and called for a sounder conceptual basis for
determining the appropriate HR practices (Dyer and Reeves, 1995; Guest
1997) and a serious debate about generalizability highlighted in the dis­
cussion of universalist, contingency and configurational perspectives
(Becker and Gerhart, 1996; Delery and Doty, 1996).

53
The fourth and fifth steps overlapped chronologically emerged to respond
to the need for greater conceptual clarity and worker exploitation. This
criticism was from writers including Blyton and Turnbull (1992), Legge
(1995) and Keenoy (1997), who argued that the emergence of HRM in
general and of a normative high commitment approach in particular was a
new and insidious form of exploitation of workers. The fourth step was
called conceptual refinement, which sought to found conceptual under­
pinning for SHRM models, and generated three themes, namely AMO
theory (Ability, Motivation, and Opportunity for employee to perform­
ance as three primary outcomes of HRM policies and practices) (Appel-
baum et al., 2000; Boselie et al., 2005), Resource-Based View of the firm
(RBV) (Barney, 1991; wright et al., 1994; and Lepak and Snell, 1999;
2002) and institutional perspective (Paauwe, 2004).

The fifth step in the development of SHRM research emerged as more

central in the past decade concerning the key role of workers and the
importance of workers’ perceptions and behaviour in understanding the
HRM-performance link. A result was a focus on worker outcomes as a
central issue in HRM and the consideration of how far it is feasible for
HRM to result in both higher performance and enhanced workers’
well-being (Peccei, 2004). This theme was consistent with the notion of
HR as an ‘Enabler’ proposed by Paauwe (2004). He contended that ena­
bling implies that the HR architecture’s main goal is the development of a
workforce with a sufficient degree of flexibility and adaptability to im­
plement a range of strategic options.

The last step was called growing sophistication and complexity. Concerns
in this step included multi-level framework in SHRM analysis, HR im­
plementation issues and the lag-effect of HR’s impact on performance

54
(Ostroff and Bowen, 2000; 2004), incorporation of the models from or­
ganizational and social psychology, stressing the perception rather than
the presence of HR practices (Nishii et al., 2008), call for multiple in­
formants (Liao, 2009) in research design.

Expanding the scope of SHRM research into international content

As this research is undertaken in the context of a transitional economy, it
is necessary to review the literature on SHRM in non-Western context.
Wei and Lau (2005), using a sample o f600 Chinese firms, examined three
factors that lead to a firm's adoption of SHRM: market orientation, HRM
importance, and HRM competency. As predicted, Chinese fuTtis were
more likely to adopt SHRM if they were more market-oriented (regardless
of ownership structure), the HRM professionals were competent, and top
management put a higher priority on HRM. Their study shed light on the
adoption of SHRM in emerging economies. Wang et al. (20o7) used a
sample of 167 organizations in China to assess the relationship between
organizational goal priorities (economic and humanistic) and the adoption
of high-performance HR practices. They found no differences in eco­
nomic goal priorities, but humanistic goals were emphasized most in
foreign-owned enterprises, least in Chinese stated owned enterprises, and
somewhere in between the two among privately-owned enterprises. There
was not much difference in high performing HR practices across all three
types of organizations. Additionally, they found that the relationship
between organizational goals and HR practices was strongest for pri­
vate-owned enterprises, next strongest for foreign-invested enterprises,
and weakest for public-owned organizations. Som (2007) presented sev­
eral propositions regarding the adoption of SHRM in India that he be­
lieves also may apply in other emerging economies. He proposed that the
national environment (extent of unionization and sector characteristics,

55
technological sophistication), organizational restructuring and ownership
structure, legitimizing driver (use of international consultants), organiza­
tional culture, and the role of HR department, all have influenced the
adoption of SHRM in India. Akhtar et al (2008) surveyed general man­
agers and HRM directors in 456 Chinese companies on product/service
performance and financial performance of their companies and a range of
SHRM practices. They found that a set of HR practices (training, par­
ticipation, reoriented appraisals, and internal career opportunities) af­
fected both product/service performance and financial performance. Ad­
ditionally, they found that employment security and job descriptions
contributed uniquely to product/ service performance, and that profit
sharing contributed uniquely to financial performance. Ngo et al. (2008)
examined SHRM practices in China to assess their impact on firm per­
formance and employee relations climate. They also tested whether firm
ownership moderated the relationships. The researchers found that the
levels of adoption of SHRM and HR practices were lower in state-owned
enterprises than in foreign-owned or privately-owned enterprises. Fur­
thermore, both SHRM and HR practices were found to have direct and
positive effects on financial and operational performance, as well as em­
ployee relations climate. But, ownership only moderated the relationship
for financial performance. To investigate the performance of subsidiaries
of MNCs of origin of transitional economy, Bjorkman and Budhwar
(2007) examined the influences of high involvement HRM system, level
of global standardization of HRM, integration of HRM and business
strategy on Indian MNCs subsidiaries’ performance. Their findings were
in consistency with the existing literature that supported for the argument
of HRM systems’ and local adaption of HRM practices’ positive predic­
tion of performance over individual HR practices, and MNC standardi­
zation’s negative prediction of subsidiary performance. In order to re-

56
spond to the call for multi-level analysis in SHRM research to identify the
causations of HRM practices and performance, Takeuchi et al. (2009)
drew on the notion of concern for employee climate and proposed that
concern for employee climate mediate the influences of high performance
work systems at establishment level on employee attitude at individ­
ual-level. Their findings demonstrated that shared establishment-level
climate acts as an important mediator of the cross-level relationships
between high performance work system and individual job attitude.
Comparing with their earlier findings ( see, Takeuchi et al., 2007), Ta­
keuchi et al. (2009) suggested that there might be multiple multilevel
pathways, like establishment-level human capital and social exchange
quality, through which high performance work systems benefit the or­
ganization. Mellahi et al. (2010) examined the impact of organizational
commitment on employees’ behaviours, including Exit, Voice, Loyalty,
and Neglect (EVLN) in seven Indian organizations. They found that,
contrary to the existing literature and their expectation, no form of com­
mitment has a direct and significant association with the use of exit, and
calculative commitment is positively associated with loyalty and not as­
sociated with neglect. Their findings supported for the assumption that
attitudinal commitment is positively associated with the use of voice.
They attributed the differences between their findings and the existing
findings to two main reasons: the instrumental reason referring to the high
growth of Indian economy and the cultural reason that Indian cultural is of
relative high collectivism-orientation, which distinguishes itself from
Western cultures.

In European context, researcher also made efforts to test the assumptions

of SHRM or to build context-specific SHRM model. Brewster (1999)
argued that theories of SHRM developed in the US were not generalizable

57
to Europe because of the significantly different context surrounding HR in
the European Union. Zupan and Kase (2005) similarly questioned the
extent to which theories postulated by scholars in developed countries
apply to counties that are transitional economies and particularly to the
Eastern European transition economies. They employed the case of Slo­
venia to develop a model that emphasized the importance of context and,
especially, the role of key facilitators and related power relationships, to
explain how HR activities emerged and impacted on firm performance.
Katou and Budhwar (2007) found that under Greek context the univer­
salistic model of HRM-performance link was supported by the data of 178
manufacturing firms, and that HRM policies of recruitment, training,
promotion, incentives, benefits, involvement, and health and safety are
positively related with organizational performance. Katou and Budhwar
(2008), based on their further analysis of the same data, found that when
business strategies and HRM policies are developed simultaneously, they
positively affect organizational performance. Their findings implied that
decisions taken simultaneously with respect to quality and employee de­
velopment, innovation and employee rewards and relations, and cost and
employee resourcing would be more valid. Drawing on the same data and
the insights from the contingency theory, the resource-based view, and the
AMO theory, they further examined the casual relationship between
business strategies, HRM policies and organizational performance. Katou
and Budhwar (2010) found that business strategies positively and directly
impacted and extensive used of HRM policies; that the HRM policies
positively impacted HRM outcomes (employee skills, abilities and mo­
tivations), directly; that the improvement of HR outcomes positively
impacted organizational performance; more interestingly, that the HRM
policies were not directed related to organizational performance but ex­
erted impact via HRM outcomes on organizational performance. Similar

58
findings were reported earlier by Katou and Budhwar (2006) under a
different perspective and these findings of different analysis methods
together helped building robust mediation effect of HR outcomes between
HRM and performance.

Gould- Williams (2004) tested the effects of high commitment HRM on

performance at employee-level in public sector of the UK. He tested the
relationships between high commitment ten HRM practices on employee
satisfaction, employee motivation, employee commitment and worker’s
intention to quit and found some supportive evidence for the links be­
tween high commitment HR practices and performance. Based on social
exchange theory, which proposed that these HR practices will initiate
positive exchange relationships, especially when managers are able to
provide evidence of consideration and concern for the needs of the indi­
vidual worker (Allen et al., 2003; Eisenberger et al., 1986),
Gould-Williams (2007) tested the effects of ‘soft’ HR practices and or­
ganizational climate on employee outcomes in UK local government. He
found that the high exchange relationships had significant predicative
effects on all five dependent variables, namely discretionary effort, mo­
tivation, intention to quit, quality of life and workplace stress.

In order to establish the causation between HRM and performance,

Voorde et al (2009) employed unit-level employee survey data of two
time points and the corresponding information of productivity, in order to
assess the impact of time 1 employee survey dimensions, including per­
formance orientation, development, pay satisfaction and job security, on
time 2 (later than time 1) productivity and the time 1 productivity’s impact
on time 2 survey dimensions. They found that performance orientation
was positively associated with productivity at both time points. Devel­

59
opment at timel was negatively associated with time 1 productivity. Pay
satisfaction at time 1 positively predicated the increase of productivity at
time 2. They also found a inverse relationship that productivity at time 1
positively predicted time 2 job security which further was positively as­
sociated with time 2 productivity. Their analysis made enormous contri­
butions to the establishment of causation between HRM and performance,
but satisfied only two of the three pre-conditions for establishing causa­
tion, which are co-variation between cause and effect and time precedence
(Wright et al., 2005). Voorde et al.’s (2009) failed to satisfy the third
precondition, the possibility of controlling for or ruling out alternative
explanations for a relationship.

2.8 Summary
SHRM has mainly been studied from four perspectives: the universal
perspective, the contingency perspective, the configurational perspective
(Delery and Doty, 1996) and the contingent-configurational perspective
(Lepak and Shaw, 2008). There are several groups of factors in the SHRM
system: HRM, HR role, business strategies, organizational performance,
and organizational contextual factors. The basic arguments of SHRM is,
first, the fit between HRM and Contingent variables generates superior
organizational performance, second, the fit between HRM practices and
policies results in superior organizational performance, and third, the
links between business strategies, HRM and organizational performance
are contingent upon organizational contextual factors, after which, the
main trends in SHRM research were concluded

The existing research has mainly been intended to describe a static situa­
tion of the SHRM system. Put another way, scholar mainly attempted to

60
take a snapshot of the SHRM system. This research’s endeavour is to
build a model describing how the SHRM system operates over time, by
linking the organizational performance and strategic HR role to the
change of business strategies from a neo-contingent perspective.

The next chapter will review the development of HRM in the PRC, from
personnel, the HRM with Chinese characteristics, then to a SHRM model.
Issues including the changing business environment in the PRC, the two
rounds of reforms in HRM, the applications of SHRM practices in the
PRC, and the criticisms and gaps in SHRM and Chinese SHRM research,
will be discussed.

61
 Chapter Three

SHRM in the PRC

The Transition from

Planned Personnel

Management

to

SHRM
62
Chapter 3 SHRM in the PRC: the Transition from
Central Planned Personnel Management to SHRM

3.1 Introduction
In this chapter, the changing economic and business environment in the
PRC is first described. Then, changes in HRM are discussed. It is argued
that HRM in PRC is undergoing a second round of reforms, leading HRM
in PRC to a Strategic model to support the global competitive and de­
velopmental strategies of Chinese domestic organizations. The first round
of HRM reforms, which occurred at the beginning of 1980s, turned the old
Soviet-style personnel system to a HRM system with both Western and
Chinese characteristics. Based on the previous research literature, the
author compares the two rounds of reforms, and argues that there is a
supportive environment emerging for this transition. It then reviews the
application of SHRM in the PRC based on the existing literature. The last
part discusses the criticisms and gaps in SHRM research and explains the
expected contribution of this research.

This chapter will highlight the following points: first, by the review of the
evolution of HRM in the PRC, particularly by pointed out the need of a
transition of HRM to a SHRM model, this thesis established the validity
of examining the status of applications of SHRM policies and practices.
Second, by critically reviewing the studies of SHRM under Chinese
context, it proved the validity of the criticism put forth by the Western
writers of the research in developed economies. Finally, to echo the need
of adopting a SHRM model, and to respond to these criticisms/gaps in the
literature, the expected contributions of this research are generated.

63
3.2 The Changing PRC
The PRC’s economic transition and ‘opening up’ was regarded as the
most dramatic change in the global landscape over the last thirty years.
Beside the great success of the economic growth, the model of its transi­
tion is also of substantial interest for researchers. China has had a unusual
economic reform process, termed market reform ‘with Chinese charac­
teristics’, which was called ‘a third way’ path to economic and organiza­
tional reform between that of former centrally planned economy and more
‘big-bang’ approach to transition as did by countries of East Europe and
former Soviet Union (Morris et al., 2002; Hassard et al., 2004). The re­
form process has had three major elements: first, an ‘open door’ to foreign
investment; second, the reform of the state-owned industrial sector; and,
third, the gradual encouragement of private enterprise (Ahlstrom et al.,
2002). This section will review the reforms in the PRC’s from perspec­
tives of economic, institution, legal and business environment.

3.2.1 Changes of Economic Environment

‘Competition, globalization and continuous change in markets and tech­
nology are the principal reasons for the transformation of HRM (Beer,
1997, p49)’. Changes in the business environment in PRC have had a
certain number of implications for the HR function and HRM policies and
practices (Zhu and Dowling, 1994; Zhu, 1997; Braun and Warner, 2002).
In the PRC, the changes after the Open Door policy have included a closer
interaction with global development, a more market-driven economy and
a separation of government from business operations (Zhao, 2005).

In the transition from a command to a market economy and the increasing

globalization of business, PRC has experienced, and is still undergoing,

64
1990 to US$72 billion in 2005 (UNCTAD 2006). These changes have
granted organizations with financial support for emerging firms of various
ownerships and built the bridge to the international market. Meanwhile,
the PRC has been ranked as one of the largest outward investors among
developing economies, with a cumulative amount of outward FDI of over
US$57.2 billion by the end of 2005 (People’s Daily 2006, p. 1). This is a
noteworthy point, indicating there is about to be a flux of Chinese MNCs
in the global market. Consequently, the need for an international HRM
and SHRM system to support the outward business strategies is emerging.
Thus, in this thesis, the trend of out-going development of Chinese firm is
argued to be one of the main driving forces, leading Chinese HRM to a
more strategic position.

3.2.2 The Changes in the Institutional Environment: Ownership

Reforms
The institutional development has been focused on two aspects, that is,
central planning and public ownership. The market operational reform has
sought to substitute a market-oriented system for mandatory central
planning system. It has resulted in substantial shrinkage of centrally
planned mechanism and an increasing role for the market in the economic
system (Zhu et al., 2005). The deteriorating performance of SOEs
prompted the Chinese government to shift the focus of SOE reform to
ownership and corporate governance restructuring in the mid-1990s.

65
There have been two major rounds of reforms in SOE sector: the intro­
duction of Contract Responsibility System (CRS) and the adoption of
Modem Enterprises System coupled with Group Company System (GCS)
(Hassard et al., 1999; Morris et al., 2002). The main purpose of ownership
reform was to improve the efficiency of SOEs through clarification of
property rights and relationships with government agencies, by reducing
government administrative intervention in the operations of SOEs. An
important part of the ownership reform was Employee Share Ownership
Schemes (ESOS) (that is, some company stock is sold to employees), thus
linking the benefits of the employees with company performance (Cooke,
2005). According to a report by the China State Council, ownership re­
form increased the efficiency of SOEs and reduced their financial debt
(Deng, 2005). The ownership reforms have also resulted in a rapid growth
of enterprises in the private sector, which are termed Privately Owned
Enterprises (POE). The use of FDI allows the birth and growth of Foreign
Owned Enterprises (FOE) and Joint Ventures (JV). The variety of own­
ership gave birth to the variety of organizational management and a de­
velopment style and model, enabling organizations to develop their own
strategies and management, which indirectly boosted the organizational
strategies and corresponding SHRM. Also, organizational ownership has
been reported to be an important factor for management in the PRC, given
that the current policies being furthered by the government are dramati­
cally changing the ownership of business enterprises (Zhu and Dowling,
2002). The change in ownership in the PRC, especially the privatization
of SOEs led to greater adoption of SHRM (Wei and Lau, 2005). Mean­
while, although the reforms of SOEs resulted in a great number of laid-off
workers and a series of social problems (Morris et al., 2001), they boosted
the emergence of a labour market and reshaped the career path of em­
ployees in the PRC (Wu and Morris, 2006).

66
3.2.3 The Changes in Legal Environment
The promulgation of the Labour Law of 1994, implemented in 1995,
placed the emerging labour-market at its heart, legalizing individual con­
tracts (geren hetong) and collective contracts (jiti hetong) (Warner 1996).
It has been found that at the shop-floor level in the electronics and gar­
ment industries, short-term contacts were used extensively. The contract
terms ranged from 1 to 5 years. Only a minority of the shop-floor workers
had permanent contracts (Morris et al, 2009). More recently, the Labour
Contract Law of 2007 took the previous legislation one step further (The
Economist 28 July 2007c, p. 74). The new law, enacted by the Standing
Committee of the National People’s Congress, made it mandatory for
employers to provide written contracts to their workers, restricted the use
of temporary labour and made it more difficult to lay-off employees. The
law, which took effect in early 2008, also set out to enhance the role of the
Party-run trade unions, to boost workers’ representative bodies and to
facilitate ‘collective bargaining’ for wages and benefits, even litigation.
At present, it is claimed that almost 50% of workers have ‘collective
contracts’ with their employers. These contracts may be possibly regarded
as an equivalent of the Western-type collective bargaining but their critics
allege that they are not based on freely negotiated accords (Warner and Ng
1999).

The series of changes in law have led to a fast-growing and floating labour
force within a free but plural market as different standards have been ap­
plied (Zhu, 2005). Coupled with the increase of discretion in recruitment
and selection in Chinese organizations, the ground of establishing a
mechanism of HR strategy to support organizational strategies is levelled.

67
3.2.4 The Changes in Business Environment: the Impacts from
Globalization
When Chinese organizations go abroad to explore their markets and in­
teract with their international competitors, they have to obey international
conventions. In this process, international bodies like the ILO and WTO
have exerted influences on the reforms and development of the Chinese
economic, business and management system, including HRM. According
to research by Zhu and Warner (2004), by the end of May 2003, the PRC
had ratified 23 ILO conventions, including those on child labour and
discrimination.

After accession into the WTO, labour issues are now linked with interna­
tional trade and international diplomatic relations. Greater invigilation of
trade and labour standards within the WTO comes from Western trade
unions, consumer groups, NGOs, and other countries’ governments and
international bodies (Zhu and Warner, 2004; Zhu and Warner, 2005). As
pointed out by Chow and Liu (2007), admission to the WTO has now
exposed the PRC to an unprecedented competitive and dynamic envi­
ronment in which more modem HRM will be crucial to meet the challenge
in creating flexible and adaptable organizations.

3.3 Changes in HRM

It have been argued that HRM in the PRC has transformed from an old
Soviet style personnel system to a hybrid HRM system influenced by both
Western mainstream HRM and Chinese characteristics (Hassard et al.,
2004; Zhu and Warner, 2005). Recently, researchers have begun to focus
their work on the strategic change of HRM and the impacts on organiza­
tional performance in the PRC. These researchers found that the basic

68
arguments of SHRM in Western world still hold water in the Chinese
context, like the link between business strategies and HRM and the link
between HRM and organizational performance. The HR function also has
been found being involved in strategic operations (Braun and Warner,
2002). Thus, this thesis argues that there is another round of changes of
HRM from being functional to being strategic. These changes are cur­
rently on-going, and there is no clear border between the HRM and the
SHRM system. But the second round of changes in HRM in the PRC is
distinguished from the first one, in terms of both driving factors and the
role of firms and the role of government. Figure 3 depicts the evolvement
of HRM in PRC and the driving factors of these changes.

Driving Forces:
Driving Forces: External: Legislation,
Three-System Reforms Market, Globalization
Driven By Government, Internal: Organizational
Influx of FDI and Growth Development Strategies
of Application of West- and Competitive Strategies
ern-Style HRM

Phase 1: Old
Soviet Style
\\ Phase 2: HRM
With // Phase 3: Tran­
sition
Personnel Chinese * * To
System Characteristics SHRM
System ?
v

Figure 3: Three Phases of HRM Evolution in PRC and the Driving Forces at Each Round of
Reforms

69
3.3.1 Before the First Round of Reforms: the Soviet-style Per­
sonnel System
The personnel system started operating after the founding of the ‘New
China’ in 1949 under the Communist Party. Until the end of Cultural
Revolution, the personnel management system was characterized by the
state under the planned economy regime (Cooke, 2005). This personnel
system can be portrayed as a central-controlled life-long employment
system. Under the old planned economy, personnel policies and practices
were strictly under the control of the state via related labour and personnel
administrative authorities and bureau. The state determined both the
number of employees to be employed and the wage scales of workers in
different categories. SOEs dominated the Chinese economy, and the
personnel management (renshi guanli) of SOEs to organize their em­
ployees was borrowed from their Soviet counterparts (Schurman, 1968;
Kaple, 1994; Warner, 1995). On the other hand, the ‘three old irons’ (jiu
san tie) employment had been the status quo from the early 1950s onwards
in state firms (Frazier 2002; Bian, 2005; Bray, 2005) and could even be
seen as a paternalistic hangover from pre-communist times. The ‘three old
irons’ (jiu santi) are the pillars of life-time employment (the ‘iron rice
bowl’, tie fan wan), centrally administered wages (the ‘iron wage’, tie
gongzi), and state-controlled appointment and promotion of managerial
staff (the ‘iron chair’, tie jiaoyi) (Ng and Warner 1998). In this personnel
system, the managers and decision-makers of the organizations were only
involved in administrative work and had no responsibilities for organiza­
tional policies and strategy making, due to top-to-bottom government
interventions.

70
3.3.2 The First Round of Reforms: Resulting in A HRM System with
Chinese Characteristics
Management in the PRC at the time of starting the ‘Open Door’ was faced
with a strategic choice as how best to cope with the process of moderni­
zation. The solution chosen by the PRC was called ‘linking up with the
international track’ (Yu Guoji Jiegui). In public discourse, it referred to
Western notions to modernize the country in everything from education to
personnel management (Rensi Guanli). ‘Linking up with the international
track’ reflected the intention of the PRC to adapt to globalization but at the
same time to retain its own ‘Chinese Characteristics’ (Wang, 2007;
Warner, 2008). This philosophy of reform at least partially explained the
notion of ‘HRM with Chinese Characteristics’, widely used in the litera­
ture on HRM in China.

Since market socialism was introduced in the 1980s, the enterprise-based

system of ‘lifetime employment’ and ‘cradle-to-grave’ mini-welfare state
(xiao shehui) has been eroded by various government initiatives. In 1986,
for example, the authorities experimented with the introduction of labour
contracts for new workers (Korzec, 1992; Zhu, 2005). In 1992, the ‘three
personnel reforms’ (san gaige) were initiated; this entailed the wider im­
plementation of labour contracts, performance-linked rewards systems,
and contributory social insurance (Warner, 1995). In turn, access to
health-care was to become more inequitable (Wang et al., 2007). By this
time, the system had already become a ‘hybrid’ one, mixing what re­
mained of the old one with the newer features.

Nationwide reforms in HRM have been launched since the 1990s, with the
primary objective of enhancing efficiency and productivity in SOE. Major
issues included the introduction of fixed-term employment contracts and

71
performance-based rewards, a shift in welfare provision responsibility,
and a new labour law regulating employment relations (Warner, 1996).
Additionally, employment polices and practices have been decentralized
to the enterprise level, and managers in SOEs have been granted auton­
omy in hiring and firing workers (Chow et al., 1999). In effect, the ‘iron
rice bowl’ employment system has been abolished. Despite these changes,
HR decisions in may SOEs still are affected by social and political con­
siderations, particularly the pace of social security reform and the possi­
bility of mass unemployment (Wong et al., 2005). Government interfer­
ence in enterprise management still persists in SOEs, and organizational
inertia has served as a deterrent to the change in HR systems (Ding and
Akhtar, 2001). As Goodall and Warner (1999) noted, some traditional
practices coexist with market-oriented practices in these enterprises.

The traditional Chinese economy is not a free market. Most enterprises are
still constrained by government regulations and intervention. The con­
ventional ‘Western Model’ of HRM may not fully capture the HR chal­
lenges facing firms in PRC. HRM is a culture-specific and con­
text-specific management system. HRM is forged by national cultural,
national factor, organizational contextual factors (Budhwar and Sparrow,
2002), and these factors varies across countries even across regions. As a
result, HRM systems exposed to and influenced by different factors may
vary to some extent to each other, which required explanations of different
theories or adjusted theories .'Therefore, HR practices must be modified to
fit the PRC’s unique cultural and institutional context. The extant research
has led to a fairly widespread view that traditional HRM practices in the
PRC have changed in recent years and ‘we are witnessing the emergence
of a more complex, hybrid management model as marketization advances
and as enterprise autonomy increases’ (Warner, 1998, p31).
As a part of the economic and enterprise reforms beginning in the early
1980s, dramatic changes in personnel systems were witnessed in last two
decades in PRC. One of the major changes has been the reduction of direct
state control and the consequent increase of autonomy and responsibility
at enterprise level in major aspects of their personnel department practice.
Along with the economic change to a market economy with Chinese
characteristics, fundamental changes in Chinese HRM policies had taken
place during the 1980s and, more especially, the 1990s.

Changes in HRM in the PRC in this phase were mainly driven by ‘three
system5reforms. These included fixed duration individual and collective
labour contracts instead of jobs-for-life; a new remuneration system based
upon performance, post and skill levels; and new welfare schemes in
which all employers and employees are required by law to make a con­
tribution to five separate funds: pension, industrial accident, maternity,
unemployment and medical insurance (Warner, 1996; 1999).
Under the labour contract system, organizations were granted the freedom
to employ both managerial and non-managerial staff, and to terminate
contracts. This change raised the motivations of employees substantially.
Also, a scheme called ‘competing for post5 (jing zheng shang gang) was
introduced to SOEs as an incentive for employees to become more com­
petitive by up-skilling themselves. In short, the first round of HRM re­
forms resulted in a transition from ‘plan to market5, from ‘egalitarian to
in-egalitarian5 and from ‘status to contract5 (Zhu, 2005).

This series of changes leading the old personnel system to a HRM system
with characteristics have been mainly driven by the state. In these changes,
the organizations themselves were passively driven by the state polices
and learnt management knowledge from their foreign partners and com­

73
petitors. Overall, this round of management reforms were led by gov­
ernment, there was no proactive role played by the firms. At firm-level
management reformed but under the instruction of government not at their
own discretion. However, as the discretion of staffing, promotion and
reward management have been devolved to the firm-level management,
and firms are now responsible for their own performance, there is a need
for independent or strategic thinking and decision-making mechanism.
This created the possibility of the use of SHRM.

3.3.3 The Second Round of Reforms Underway: in Transition to

SHRM
The transition to a SHRM system in PRC is an on-going process. There is
no clear border between the second phase and the third one. The process
could be regarded as the furthering and the deepening of the second phase,
which is based on reforms in the second phase and is a continuous process
of it. The distinction between the HRM changes in first round and the
second round is concerned with the primary driving-forces of the reforms,
The first round reforms were driven by state policies, while the current
round of HR reform is driven by factors including both state policies and
non-state factors. These factors include certain new trends in the Chinese
market and new attempts of organizations. This is in line with Warner’s
(2008) argument, who portrayed the evolutionary change-process of
HRM in the PRC with a schema of market-driven HR reform. The driv­
ing-forces of HRM reforms started from core variables, which are strate­
gic, economic and organizational, via contextual variables, including
culture, institutions, politics and values, arrived at the outcomes, such as
management, labour-market, employment and HRM. The thesis will now
give a discussion on the changing driving-forces of HRM reforms.

74
3.3.3.1 The Emergence of Labour M arket and Social Welfare System
There was no labour market in the planned economy, and the social wel­
fare function was fulfilled by work-units (SOEs), which were called (Xiao
She Hui) . One of the outcomes of SOEs reforms was the reduction of the
workforce at both employee and management levels (Sheehan et al.,
2000). In May 1997, the State Commission for Economic Restructuring
(SCER) predicted that 15 to 20 million surplus workers in the state sector
would lose their jobs by 2000 and in turn estimated the total number of
surplus workers in SOEs at 54 million, close to half of total workforce
(South China Morning Post, May 7, 1997). The SOEs and local authori­
ties together dealt with this surplus work problem based on the principle
of ‘political stability5, by introducing schemes like labour pools, early
retirement with a lump- sum investment from the SOEs to help the laid off
start their own business. Also, some cities reserved new certain jobs, like
taxi driver, for the redundant workers (Hassard et al., 2002; Hassard et al.,
2006; Lee and Warner, 2007). Based on this existence of a great number
of surplus workers in the PRC, and along with the increasing number of
non-state owned enterprises, as well as the development of international
labour market, the Chinese national labour market has changed (Wu and
Morris, 2009). In addition, a series of changes in law in the PRC (Labour
Law 1994, Labour Contact Law 2007 and New Bankruptcy Law 2007)
have led to a fast-growing and floating labour force within a free but
plural market, as different standards have been applied (Zhu, 2005;
Warner, 2008).

The establishment of a nationwide insurance scheme means that costs will

be shared between three parties: the state, the enterprise and the individual
employee (Ding and Warner, 1999). It is required by the Labour Law that
both employees and employers contribute to five funds: pension, accident

75
and injury, maternity, unemployment and medical funds (Morris and
Zhang, 2002; Warner 1997). In 1998 the State Council of China provided
a new framework for medical insurance reform that transferred responsi­
bilities from enterprises to local governments (Hassard et al., 2004). As a
result, enterprises were gradually freed from the burden of taking care of
their employees for life time.

3.3.3.2 The Rise Development of FOEs and JVs under an Increas­

ingly Market-oriented Economy with the Substantial Reduc­
tion of the Number of SOEs
On one hand, the Fifteenth Chinese Communist Party Congress in Sep­
tember 1997 decided to allow the selling off, merger, or bankruptcy of all
but five hundred of the largest and most strategically significant SOEs
(Hassard et al., 1999). Ever since then, the number of SOEs has been
reducing. There were only 126 centrally owned SOEs by 2010. On the
other hand, as one of the consequences of the open-door policy, the
number of FOEs has increased substantially in the PRC over the past two
decades. Western ‘mainstream practices’ in HRM such as formal per­
formance appraisal, performance-based compensation, and extensive
training have been widely adopted in these firms (Ding et al., 2004;
Warner, 1997, Warner, 1999). Subject to less administrative interference
from central and local government, these firms have more discretion in
designing their own HR systems (Chow et al., 1999). While international
companies are increasingly entering the PRC, the international entrepre­
neurship approach is an effective strategy not only for expanding new
markets and introducing overseas funds and managerial skills for en­
hancing competitiveness, but also for more and more local companies to
introduce and recruit foreign knowledge-managers and technicians for

76
their joint ventures and/or key local facilities for their business develop­
ment. Meanwhile, companies are establishing their business branches
overseas as a competitive entrepreneurship strategy. Therefore, both
strategic and cross-cultural HRM has become a crucial supporting ap­
proach (Wang and Zang, 2004).

Meanwhile, with the further integration of the PRC into the global
economy, the flourishing of enterprises in the private sector and the de­
centralization of decision-making to enterprise level, have brought the
need for more strategic involvement of the HR function (Braun and
Warner, 2002; Zhao and Ni, 1997). The number of privately owned en­
terprises has also experienced rapid growth. One characteristic of these
firms is their ability to respond quickly to environmental changes. As
Warner (1996) noted, POEs have greater flexibility in their employment
practices than SOEs, and they can employ and unemploy workers in a
relatively unconstrained way. Because of their short history, their HR
practices tend to be informal and non-systematic as compared with other
firms (Zhu, 2005). However, to improve their market competitiveness and
to attract and retain talent, these firms have started to invest more in HR
and to develop their HR systems (Zhu, 2005).

3.3.3.3 The Rise of POEs and Organization-level Competitive

Strategies
On one hand, when Chinese indigenous organizations have achieved
certain merits in both market and organizational constructions, they are
likely to search for a further development strategy, via which they can
either explore new market areas or fit into new development directions.
Cooke (2008) summarized the main strategies used by Chinese POEs into

77
a number of types: diversification, internationalization, product innova­
tion and quality enhancement. Diversification and internationalization
have been pursued by a increasing number of Chinese enterprises (Benson
and Zhu, 1999; Zhang et al., 2006), because the deficiencies in the insti­
tutional environment of emerging economies (Li and Wong, 2003), such
as the lack of well-established product markets, capital markets and labour
market, the lack of an independent and fully functional regulatory system
and the ineffective enforcement of contracts (Khanna and Palepu, 1997).
As Wang and Zang (2004) suggested, technological innovation and en­
trepreneurial networking are among the most popular strategies for
business development in the PRC through a variety of cross-regional
mergers, acquisitions, joint ventures, and business alliances. There is a
significant shift in mergers and acquisitions from the SOEs’ acquisition of
private companies in 2002, to the private company’s acquisition of SOEs
in 2003. The state now runs less of the economy than it did in the past.
According to Asia Bank (2006, pi), the share of SOEs in productive
output had fallen from 77.6% in 1978 to less than 30% in 2006. The SOEs
no longer dominated the economy, by either share of output or employ­
ment. Many of the privatized enterprises incorporated with company-level
technological innovations. However, in many cases of mergers, HRM was
a bottleneck for effective integration. Therefore, SHRM is urgently
needed for supporting organizational change, technological innovation
and entrepreneurial development.

One the other hand, when Chinese indigenous organizations, especially

POEs, approach a certain developmental stage, they are seeking to expand
their business across regions or even borders. The entrepreneurship
transformation in PRC also accelerates the strategic change of HRM. For
most Chinese firms, the entrepreneurship transformation is the main
i

78
business-driven strategy in connection with intra-entrepreneurship, cor­
porate entrepreneurship and strategic entrepreneurship (Wang, 2003).
However, among many Chinese companies, there is a lack of strat­
egy-level integration of SHRM with entrepreneurship and therefore in­
tra-entrepreneurship was often less effective in terms of sustainability
(Wang and Mobley, 1999). Recent studies have called for strategic plan­
ning to be used to identify and improve those organisational decisions and
actions for integrating human resource functions into the organisational
and innovation strategy in order to support and implement the strategic
plan to achieve a competitive advantage (Wofford, 2002).

At this stage, the organizations of different ownerships have possessed a

relatively large freedom when they make their decisions on strategic and
operational policies and practices. When discretion was granted by the
state, organizations, under less governmental intervention, began to make
their decisions according to market situations and the competitive strate­
gies in certain industries and regions. Thus, the driving factors for changes
in HRM are both state and non-state factors. Moreover, the state factors
are rolling back while the non-state ones are growing rapidly.

3.3.4 Comparing the Two Rounds of HRM Reforms

If organizations want to gain a competitive advantage by continually de-
veloping personnel expertise, the adoption of appropriate HR systems will
become more prevalent in PRC.

From Table 1, it can be seen that the second round of HRM reform, ad­
vancing along with the changes in economic and legal systems, is dis-
/

79
tinguished from the first one. In the context of the second round, organi­
zations are more independent from government, and are more responsible
for their performance and more flexible to the fast-changing environment.
With the rise of outward strategies and cross-regional strategies, organi­
zations, drawing on their unique entrepreneur model, have to adopt a more
complex SHRM system to support their success. It can be expected that,
with the progress of this round of reform, a SHRM system suitable for the
coming global competition will be established in the PRC, though there
are still improvements to accomplish.

3.4 SHRM in PRC Today

3.4.1 Application of SHRM Practices in the PRC Today

There is a growing literature investigating HRM practices in the PRC
(Zhu and Dowling, 1994; Ding and Akhtar, 2001; Braun and Warner,
2002; Deng et al., 2003; Morris et al., 2009). This section entails the state
of the SHRM applications in PRC from some critical perspectives, in­
cluding HRM function, training and development, and employment in­
volvement, job descriptions and performance appraisal, recruiting and
retaining, pay and rewards systems.

80
 First Round Second Round
o f HRM Reform o f HRM Reform
Aim • Enhancing SOEs’ Perform­ • SHRM system suits International
ance Market and Serves on Outbound
• Encouraging Multiple Own­ Market Strategy
erships
Driving • Government-Driven Reforms • Freer Market
Factors • Further Development of Non-SOEs
• Increase of FDI and the in­ • Deepened Globalization
troduction of Western Style • More Supportive Legal System
Mainstream HRM • Labour Market
• Proactive Organizational-Level
Business-Driven Development and
Competitive Strategies of
Cross-Region and Cross-border
Role of • Passive • Proactive
Organizations • Less Informed • More Experienced
Outcomes • Hybrid HRM with both • SHRM system founded: but
• Chinese Characteristics, • Unbalanced across ownerships and
• and regions.
• Western Style • Lack of Knowledge and Experience
for Outgoing Activities

Table 1: A Comparison between the First and Second Round HRM Reforms

3.4.1.1 HRM Function

In an interview-based study on MNCs in PRC, Braun and Warner (2002)
reported that, in most of the cases, the HRM function was described as
having high strategic importance and being involved in strategic business
decisions. In these cases, the HRM function was a strategic role of HR
function in strategy formulation and was strongly involved in new in­
vestments, divestments, and launching of new product lines.

Concerning the staffing of HRM function, Child and Yan (1999) sug­
gested that typically the equity position is associated with certain rights
linked to managerial appointments. In Braun and Warner’s (2002) re­
search, in all the FIEs, as well as the majority equity JVs, the foreign
partner appointed the HRM positions, whereas in the minority eq-
uity-stake JVs the HRM positions were more typically made by the Chi­
nese partner. Based on a longitudinal study on the transition of HR to a
more strategic position, Zhu et al. (2005) compared the situation of 1994/5
and 2001/2/when the use of independent HR departments increased sig­
nificantly in Chinese organizations. But there was still a lack of partici­
pation into the strategic decision-making process for HR role. Contrasting
with Braun and Warner’s (2002) findings, Zhu and her colleagues found
no significant difference on the perceived importance and effectiveness of
the HR functions in PRC across ownerships.

3.4.1.2 Training and Development

In a cross-cultural study of managerial attitudes about HRM practices,
Jennings et al. (1995) found that training and development was perceived
as the most important strategic HRM practice. In the PRC, the amount of
investment in training employees varies across firms with different own­
ership types (Drost et al., 2002). Zhao (1999) noted that about half of
firms’ annual expenditure on training was less than RMB 30 per employee.
By contrast, in FIEs substantial amounts have been spent on training
employees, since training was seen as a critical and effective tool to en­
sure product and service quality and standards. Also, in large companies
managers were encouraged to follow self-learning programmes as well as
often being sent on external courses, like MBA or EMBAs which mush­
roomed in the 1990s. By contrast, people in small and medium-sized en­
terprises (SME) had little chance of such training and development
(Rowley et al., 2004).

82
In multinational corporations, training is the keystone for localization of
top and senior managers. Trained Chinese managers have successfully
replaced expatriate managers at the corporate and department levels. In
Ericsson PRC Ltd., for example, out of 12 senior managers at the corpo­
rate level, nine are local Chinese. Also, out of 25 department directors, 21
are Chinese managers (Akhtar et al., 2008). In SOEs, employee training
programmes also gained substantial attention and efforts. It was reported
that in the railway industry, organizations relied highly on the full-scale
training programme for its employees to maintain a good human resource
quality. The training differed across levels and groups in organizations,
concentrating mainly on moral teaching and technical skill refreshment
(Cooke, 2000).

3.4.1.3 Employee Involvement

In FIEs, it is recommended that local managers need to be consulted as the
company strives to integrate its corporate culture with Chinese traditions
and customs (Yang, 1998). In SOEs, workers’ congresses are traditionally
the primary channel for employee involvement in management activities.

Workers’ congresses, with trade unions as executive agents, are entitled

by law to approve or disapprove of companies’ strategic plans and to have
a say in major issues related to the welfare of workers (Ding et al.j 2001).
However, the significance of workers’ congresses has declined in recent
years. In the large, reformed, SOEs, such as publicly listed firms and
joint-stock companies, employee representatives are elected to participate
in the meetings of the boards of directors, representing workers and
managers in the major corporate decisions.

83
In multiple case studies, Benson et al. (2000) found that the application of
employment involvement schemes differed from company to company.
The most widely used scheme was information-sharing schemes in all
type of ownerships, including JVs and SOEs. This shared information was
not only general information on production plans and schedules, but
strategies to improve production and employee performance. But indi­
vidual grievance mechanisms existed in only a minority of the companies.

3.4.1.4 Job Descriptions and Performance Appraisal

It has now become a popular practice in Chinese firms that each employee
has clearly defined duties, which are evaluated regularly to determine
his/her level of compensation. Job descriptions are the centre piece for the
so called ‘post-wage system’, which developed from the reward system
reform in Chinese enterprises. The “post-wage system” is composed of
two parts: a basic wage (determined by the intensity and complexity of job
duties) and a supplementary wage (determined by the accomplishment of
job duties). This system is accompanied by clear job descriptions and a
strict performance appraisal system. In recent years, the “post-wage sys­
tem” has increasingly added elements of skills and capabilities. The sys­
tem is called ganwei jin en g gongzizhi, and emphasizes clear job respon­
sibilities, professional skills, and qualifications, the ability to innovate,
and results-based performance appraisal (Warner, 1995; Ding & Warner,
2001 ).

Performance appraisal in the PRC has been undergoing significant

changes (Shen, 2004). It is not used just for managers’ promotions and
transfers, but for line workers. Recent research conducted by the Devel­
opment and Research Center of the PRC State Council, reported that

84
67.3% of the sampled firms utilize performance appraisal. Of 1,044 en­
terprises, the majority reported that appraisal had positive impacts on
employee performance ranging from moderately effective to very effec­
tive. 37.2% of the sampled firms asserted that performance appraisal was
not as effective as expected. The reasons for the unsatisfactory results of
performance appraisal include unclear performance objectives and
evaluation criteria, the lack of feedback and two-way communication,
uncooperative attitudes by employees arising from a sense of being
monitored and controlled, and the lack of a corresponding job descriptions
and reward and disciplining systems to match appraisal results (Guo &
Suo, 2005).

3.4.1.5 Recruiting and Retaining

Before the economic reforms, the term recruiting and retaining were
rarely used in the PRC, as all the personnel activities were centrally
planned by the state (Zhu and Dowling, 2002). In recruiting and retaining
qualified professionals, providing opportunities for career and personal
development plays an important role in attracting young Chinese people
holding graduate and postgraduate degrees (Caplan, 2003). As Chinese
society gradually moves towards a knowledge society, career manage­
ment has become an increasingly important part of human resource
strategies, especially in the high-technology sector. More and more
companies provide opportunities for development and continuous learn­
ing in return for high performance and productivity during an employee’s
stay (Larkin, 2005). Another issue related to recruitment and selection is
the situation of labour market as, in the PRC, there is a paradox of the
shortages amid plenty, which mean the amount of candidates are of large
number, but less than 10% of them are suitable and competent to work in
internationalized or multinational companies (Farrell and Grant, 2005).
Recruitment and selection systems also vary across industries. In the
electronics and garments industries in the PRC, Morris et al. (2009) re­
ported that the shop-floor workers were recruited via newspaper adver­
tisements, from labour agencies, from schools, or by word of mouth.
Companies recruited workers from agricultural areas or recruited migrant
workers to respond to the tight local labour market. These recruitment
methods ensured docile labour forces, plentiful young female labour and
low labour turnover. The entry requirements were relatively low in both
electronics and garment industries. Basically, they required single young
females, who could ‘read write and count5.

3.4.1.6 Pay and Rewards Systems

Job grading has been widely used in PRC as a means to build career
ladders and decide pay and rewards. Pay and rewards systems vary from
the complex to the simple (Braun and Warner, 2002; Morris et al., 2009).
In MNCs, performance-related-pay has been implemented. Bonus pay­
ments are based on both individual and collective performance. The level
to which individual and collective performance influences bonus pay­
ments varies by managerial level and function. Some companies may
provide housing to managerial level staff as a means of attracting and
retaining them (Braun and Warner, 2002). In the electronics industry,
MNCs provided basic salary plus some production related bonus to
shop-floor workers (Morris et al., 2009).

In SOEs, multiple rewarding methods are also employed. It is believed

that the linking between rewarding system and the job could become a
motivational mechanism. In the railway industry, pay was linked to the

86
financial return of the business unit and the performance of individuals
(Cooke, 2000), to reflect more appropriately the differences of skill re­
quirement and performance between different types of jobs. Workers and
managers from a Chinese SOE expressed that individually based per­
formance-related pay could be of benefit to the company, and they op­
posed the use of a ‘rigid and flat’ reward system (Bozionelos and Wang,
2007).

A form of reward scheme called stock options was found in some com­
panies. For instance, workers were given priority in the purchase of shares
when shares were offered to the public. Another form of stock option was
that the company shares were offered to employees so that they were
collectively owned by all employees. Profit-sharing programmes were
also used. This was mainly carried out in a way that Worker’s congress
determined how the profit would be used and distributed (Benson, et al.,
2000).

3.4.2 Does Integration between Business Strategies and HRM,

and Fit between HRM Policies and Practices Generate
Superior Performance in the PRC?

3.4.2.1 Integration between Business Strategies and HRM as a Pre­

dictor of Performance
Bjorkman and Fan (2002) focused on JVs and wholly owned foreign
subsidiaries in the PRC and found a positive impact of HRM practices on
performance and that the extent of HRM-strategy integration was a
stronger predictor of performance than HRM on its own. Chow and Liu
(2008) also found that the alignment between strategy and HRM predicted
i

87
organizational performance in their researched firms in the PRC. These
researchers all tested the interaction between HRM practices and business
strategies by input the multiplication of these two groups of variables into
multiple regressions as independent variables and compare the beta value
with those of HRM practices alone. Nevertheless, Mitsuhashi et al. (2000)
reported the poor performance of HR departments of MNCs. HR man­
agers in these firms attributed unsatisfactory performance to the inability
of HR departments to act strategically. Zhu et al. (2005) also noted that
HR managers across all ownership types were beginning to participate in
strategic decision making, but how far they can strategically integrate the
HR function remains to be seen. Thus, the extent to which HRM integrates
into strategies or strategic decision-making is questionable.

3.4.3 Do HRM and the Fit between HRM Policies and Practices
Predict Organizational Performance?
The effects of HRM policies and practices on organizational performance
have been investigated by researchers in the PRC. Yu and Egri (2005)
found that several HR practices were related to job satisfaction and af­
fective organizational commitment of employees working in a JV and an
SOE. Deng et al. (2003) reported that, in a sample of SOEs, a bundle of
HR practices had a substantial impact on export performance. Bjokman
and Fan (2002) reported that HR practices that focus on individual per­
formance and employment motivation were strong predictors of firm
performance in FIEs. Takeuchi et al. (2003) also found support for the
positive relationship between a firm’s HR practices and financial per­
formance in a sample of Japanese subsidiaries in the PRC. SHRM also
supports the innovation performance and the HR outcomes, like employee
turnover, task accomplishment and employee satisfaction (Wang and
Zang, 2008). Recently, it was reported by researchers that the fit between
HRM policies and practices positively predicted organizational per­
formance (Chow et al., 2008; Zhang and Li, 2009). In this group of re­
search, HRM was treated as bundles or configurations and could predict
the increase of performance.

Furthermore, there have been new organizational factors or perspectives

which have been introduced into SHRM research, like the employment
relationship. Wang et al. (2003) argued that organization-specific em­
ployment relationships with different levels of inducements and expected
contributions are critical for firm performance. Tsui and Wu (2005) fur­
ther suggested that certain HR practices such as training and development
lead to an employment relationship that contributes to firm performance.

3.4.3.1 Other Considerations in SHRM Research in PRC

Currently, although there is evidence that Chinese HRM is changing to a
SHRM system, HRM in the PRC still has both a Western mainstream
HRM style and Chinese characteristics. Researchers have been applying
the theories developed and empirically proved in Western settings into
Chinese context. The results of this research have proved that the theories
and arguments from Western world hold in the Chinese context. However,
the question will be if these theories or models are able to fully depict
HRM in the PRC? The author believes that these theories and models can
reflect certain aspects of HRM in the PRC, particularly those of Western
style. Original theories and models have to be generated to complete the
picture of HRM in the PRC via exploring those aspects with Chinese
characteristics.

89
In fulfilling this task, several researchers have made a breakthrough (for
example, Cheah and Chew, 2005; Wang and Zang, 2005; Wang and Wang,
2008). Cheah and Chew (2005) also attempted to model the strategic
management in the construction industry in the PRC. But due to the
fast-changing business environment of the PRC, they found no hard and
fast rule in developing a coherent strategy. Wang and Zang (2005) inter­
viewed 52 people from Yangtze Delta Region (Zhejiang and Shanghai)
and five models of entrepreneurship were generated. Based on these en­
trepreneurship models, they fitted HR of different strategic levels into the
models. Based on a survey of 103 firms from 11 cities in the PRC, Wang
and Wang (2008) tested the moderating effects of regional difference on
the relationships between HRM and organizational performance. They
found that comparisons with the eastern, central and western regions
played a negative moderating effect on HRM- performance link. In other
words, in the eastern region of the PRC, the HRM- performance link was
stronger than those in central and western regions. These researchers have
made efforts to explore the Chinese aspects of HRM in PRC. These
findings, however, have just made a first step destination. More research
is needed to explore a more complete view of HRM in the PRC.

3.5 Criticism and Gaps

Chapter 2 and the preceding part of this chapter have reviewed the main
research areas, theoretical perspectives and common research methods in
SHRM. Within the framework of the three fits and the three approaches to
HRM, researchers in this field have indicated that HRM patterns which fit
the business strategies and organizational contextual factors leads to a
superior performance. However, there are still criticisms on SHRM from
researchers.

90
Association Rather Than Causation
Every since Guest (1987) published his normative framework describing
the essence of HRM, the part of the emphasis of HRM has been placed on
its strategic contribution, its closer alignment to business and the in­
volvement of line management, and focusing on HRM outcomes like
commitment, flexibility and quality. But two major reviews of the re­
search (Boselie et al., 2005; Combs et al., 2006) confirmed that the large
majority of published studies demonstrated and association between
HRM and performance rather than causation. A frequently cited problem
with most of the research on HRM and performance is the cross-sectional
nature of research design (Guest, 2011). The data of HRM and perform­
ance are mostly collected at a same point of time which fails to take into
account the lag-effect of HRM practices implementation. Put another way,
the proposed HRM practices have to take certain length of time to be
implementation and realized before exert effect on employee and organ­
izational outcomes. It is questionable that the researcher linked current
HRM practices to current performance. Thus, the field of SHRM research
is in need of more longitudinal research to examine HRM-performance
link with considering the lag-effect of HRM practices.

Signal Source o f Information

Researchers in this field always collected data of HRM and outcomes
from single source of information (Gerhart, 2007). It is naive to assume
that a senor HR manager can provide information about local practices
either in terms of whether practices are implemented or whether they are
effective. The research evidence suggests generally low levels of agree­
ment on the presence of practices when management accounts, usually
from HR mangers, are compared with workers accounts with mangers
invariably reporting more practices in place than reported by workers (see,
/

91
Liao et al., 2009). Thus, the field is in need of research design involving
respondents from multiple levels of organization and multiple groups of
people.

Measuring Performance
In Boselie et al.’s (2005) extensive review of the literature, half of all ar­
ticles included financial measures. Paauwe (2009) concluded that it would
be problematic because financial measures are more distal from HRM
than measures like satisfaction, commitment, intention to quite. Even
those examined HRM’s impact on HR-related outcomes reported contra­
dictory evidence. Osterman (2000) found that although the new work
systems led to improved organizational performance, but it was positively
associated with layoffs and not related to pay gains. Appelbaum et al.
(2000) reported some contrary results from their research. They found that
HRM is positively related to employee earnings, and employee outcomes
of commitment, job satisfaction, and reduced level of work stress. In ad­
dition to the lack of agreement on the effects of HPWS on employee
earnings, there is generally limited research on the effects of HRM on
employees besides the focus on gaining their discretionary effort. Thus,
research on the HRM- performance relationship may need to include
outcomes that focus not only on employee’s financial gain but also their
well-being (Aryee and Budhwar, 2008). And the field is in need of per­
formance indicators that are far more proximal in terms of what HR
practices can actually affect, such as changes in employee attitude and
behaviour, and subsequent changes in outcomes at organizational level
(Paauwe, 2009).

Missing the Strategic Role o f HR Function

t

92
As Allen and Wright (2007, p91) stated: ‘HR [function] was seen to play
only a secondary role in the accomplishment of strategy with an emphasis
in the role that HRM played in strategy implementation, but not strategy
formulation5. Brockbank (1997) advocated that firms should adopt a
proactive HR role to achieve sustainable competitive advantage. It seems
that the models in existing literature failed to incorporate the role of HR
function, in spite of recognition of significance of a strategic HR role.
Only a few researchers used strategic level of HR function in their re­
search (Ding and Akhtar, 2001).

Testing theories in non-developed economies

It has been pointed out by several researchers (Brewster 1999; Bowen et al.
2002) that strategic HRM research has been mainly carried out in ad­
vanced market economies. They suggest that further research is needed in
transitional economies to explore whether HRM practices translate into
improved productivity at firm level. This is in line with the argument of
Paauwe5s (2004) institutional perspective to SHRM. He highlighted the
importance of an institutional perspective and reminded us that in Europe
the legislative framework as well as the institutions relating to education
and training and to employee representation ensured that a minimum set
of HR practices were in place in most organizations. This means that
competitive advantage is more likely to come either from the way in
which these standard practices are implemented or from the use of addi­
tional distinctive practices. In the same sense, this paper argues that in­
stitution in the PRC is different from those in America and Europe, so the
SHRM field it also in need of research in transitional countries like the
PRC.

About the sustainable competitive advantages

93
The commonly accepted logic of the SHRM system is that strategy and
organizational contextual factors influence the pattern of HRM to leads to
the superior organizational performance. Then, the question is what will
happen after this series of processes? Although the organizational system
will stay stable when it achieves high performance, the organizational
structure cannot keep still all the time. Thus, this thesis also argues that a
dynamic view should be used to describe the operations of the SHRM
system. To fulfil this task, this research draws on the competence and
resource based strategic formulation theory and strategic role of HR
function to propose a model of dynamic SHRM (see Chapter 4).

In Chinese settings, these gaps were also identified by researchers. In

respect of the strategic role of HR function, Zhu et al. (2008) contended
that more efforts should be made to explore extent to which the strategic
integration and devolvement/delegation of HRM were practiced by in­
dustrial firms in China with different characteristics and to examine the
impact of the strategic integration and devolvement/delegation of HRM
practices on a firms’ financial and social performance. This thesis ex­
amines strategic role of HR function on two aspects: the strategy formu­
lation role and strategy implementation role of the HR function, drawing
on the information offered by classic writers in the changing role of HR
function, such as Storey (1 992) and Ulrich (1997, 1998). In terms of lack
of the agreement on the mediators between HRM and organizational
performance and the lack of its theories underpinning, it has been found
that most of the empirical research examined the direct effect on organ­
izational financial performance, and small number of them also linked
them to operational outcomes. It has been indicated that the link between
HRM and financial performance is less supported by the empirical evi­
dence than other performance, like operation performance in terms of both

94
the existence of the links and the strength of the impacts, researchers in the
field of Chinese SHRM did not draw any relevant theories to explain the
results or re-design their research. This researcher adopts a theoretical
framework developed by Dyer and Reeves (1995) to examining the me­
diation of HR outcomes (e.g., employee satisfaction, employee ability and
employee attitude) and the mediation of organizational outcomes (e.g.,
productivity, customer satisfaction and public image) between HRM and
financial performance.

3.6 The Expected Contributions of this Research

Based on the literature review and research interests, it is expected that
this research will make several contributions to SHRM research.

1) Investigating the Current State of the Application of SHRM in the PRC

It has been argued in this thesis, that HRM in the PRC is undergoing a
second round of reforms to adopt a strategic model. This research will use
the data collected from enterprises in Beijing to examine the current state
of the application of HRM practices, and to test if HRM in the researched
enterprises is changing to a strategic model. It will also contribute to the
literature with updated evidence of HRM application in the PRC, includ­
ing HR planning, HR staffing, HR appraisal, HR compensation, training
and development and management-employee relationship.
2) Examining the Influences of Business Strategies on HRM, and the
influences of HRM on organizational performance
There are various approaches used in studying relationships between HRM
and performance (Sivasubramaniam and Kroeck, 1995). Four normative
approaches, universalistic, contingency, configurational (Delery and Doty,
1996) and contingent-configurational (Lepak and Shaw, 2008) approaches,
were established in literature. This thesis uses a contingent-configurational
perspective to test the links between business strategies, HRM and or­
ganizational performance, as well as the moderating effects of organiza­
tional contextual factor.

3) Deconstructing organizational performance and examining the hier­

archical effects between HRM and organizational performance.
This thesis will contribute to the literature by opening the ‘black box’ of
the link between HRM and organizational performance, drawing on the
model of organizational performance’s structure of Dyer and Reeves
(1995). It will test the hierarchical effects along the link between HRM and
financial accounting outcomes, with the HR outcomes and organizational
outcomes acting as mediators. This is to respond the call made by Wright
and Gardener (2000, p4), ‘ one of the first issues that must be settled in the
effort to understand how HR practices impact performance is to theorize
the means through which this relationship occurs, in essence specifying
the intervening variables between the measure of HR practices and the
measure of firm performance’.

4) Linking organizational performance to business strategies

Some of the existing models explain how the SHRM system sustains the
competitive advantage. These models include Beer et al. (1984), Guest
(1989), Hendry and Pettigrew (1992), Storey (1992). But the emphasis in
these models was placed either on the choices of HRM practices and
policies or on HRM- performance link, because these questions were the
central debate at that time. A problem is the absence of theorization of the
influences of HRM or other outcomes of HRM back on strategies, which

96
are at the starting-point of SHRM system. As a result, these links were
taken for granted and with no theoretical supports.

This thesis will build a model to uncover the process of SHRM creating,
managing, preserving and sustaining the competitive advantage. The key
link to achieve this model is the link between organizational performance
and business strategies. It drew on contingent-configurational perspective
of SHRM modelling (Lepak and Shaw, 2008) and competence and re­
source based strategy formulation theory (Andrews, 1998, Hamel and
Prahalad, 1998) to fulfil these objectives.

5) Exploring the Strategic Role of HR Function

The multiple strategic roles of the HR function are examined in this re­
search, as previous research often treated the strategic role of HR as a
facilitator of strategy implementation. In other words, the strategic role of
HR has been used as a mediator or moderator in the relationships between
the main constructs of SHRM research. In this research, the author con­
tends that Strategic HR also plays a proactive role, in which HR function
is involved in strategic decision-making process, and influences the
adoption of business strategies. Moreover, it argues that the strategic role
of HR plays an adjusting role in this whole process. HR adjusts the or­
ganizational change by participating in strategy-making and by influ­
encing the adoption of HRM policies and practices. This is in line with the
call made by Zhu et al. (2008) for the need to analyze the roles and rela­
tionships of HRM with regard to organizational business strategy and firm
performance.

6) Examining the difference across Organizational Contextual Factors

97
Organizational contextual factors, like life cycle, age, size, culture and
business sector are important factors shaping the SHRM system in a given
context. Although research in Chinese SHRM employed the tests of this
organizational contextual factors frequently, the researched enterprises in
existing research were mainly from the southeast of the PRC, unlike those
in this thesis, which are from Beijing, a municipal city in the north of the
PRC.

Also, this research replaces industry sector with business sector. In line
with the differences between industries (Cooke, 2005), enterprises are
sorted out according to their main products and services. This typology can
reflect the variations of organizational process for various prod­
ucts/services.

7) Contribution to the Neo-contingency Theory

Previous research, even that seeking the interrelations between different
SHRM constructs, has only presented static models. These models are
useful in describing the SHRM system under various contexts. The ques­
tion, however, is where and what the system will be afterwards? Based on
a neo-contingency approach, competence and resource based strategy
formulation theory and strategic role of HR (see Chapter 4), this thesis
present a dynamic model of SHRM which embeds SHRM in organiza­
tional change.

3.7 Summary
In the context of the PRC, a typical transitional economy, the HRM sys­
tem has been changing since the Open Door policy. There have been two
t

98
main rounds of reforms in HRM. The first round turned the old personnel
system to HRM with Chinese characteristics. The second one is underway
to make the HRM strategic to support PRC’s further involvement in
globalization and to support the out-going strategies and cross-regional
and cross-border strategies. It was found in existing literature that HRM in
the PRC showed some features of SHRM.

Criticisms and gaps were mainly focused on three points: a lack of work
on the HRM- organizational performance link, a lack of theory testing or
generating in developing economies, a lack of sustained competitive ad­
vantage generation mechanism exploration.

Based on the literature review and research interests, the author of this
thesis will present and examine a dynamic model of SHRM based on
PRC’s context, which are expected to contribute to the literature both
theoretically and practically.

The next chapter will explain the theories used in this thesis, the devel­
opment of the conceptual model, the generation of hypotheses and the
measures of the constructs in the conceptual model.

99
 Chapter Four

A Conceptual Model

and

A Empirical Model

of

SHRM System

100
Chapter 4 A Conceptual Model of Dynamic SHRM Sys­
tem and the Empirical Model to Be Tested

4.1 Introduction
This research will examine the relationships between the adoption of
HRM policies, business strategies, and non-strategic factors, including
organizational characteristics, the strategic role of HR function and or­
ganizational performance. A conceptual model based on a
neo-contingency approach is presented. This model differs itself from
previous ones by offering a mechanism of a dynamic SHRM system,
which enables the static SHRM system to operate and to self-modify
constantly. It draws on three theories in organizational and HR studies:
contingent-configuration perspective of SHRM modelling, competence
and resource based strategy formulation theory and the strategic role of
HR function. Also, it includes the tests of the hierarchical effects between
HRM and organizational performance. This chapter presents a conceptual
model including all the relationships proposed. It starts with introducing
the theories used in this thesis, along with which are the development of
the different parts of the conceptual model. Finally, it explains the meas­
ures of the constructs.

4.2 Theoretical Framework: Neo-contingency Theory

Neo-contingency emerged from the critics of contingency theory, such as
Sorge and Maurice, (1990); Sorge (1991), Donaldson (1999, 2001) and
Ramirez and Fomerino (2007). Donaldson’s (2001) work is very useful
for the current research. He defined three main problems (1) how to ex­
plain changes in contingency; (2) how managers define what is fit, in

101
other words, how changes in organizations occur in order to get the fit;
and (3) why organizations move from one fit line to another fit line if there
is no gain in higher performance.

Traditional contingency theory is a theory of equilibrium in that it de­

scribes organizational change as a process of regaining equilibrium
(Bums and Stalker, 1961). It was assumed that organizations would stay
where the equilibrium was obtained. It is known that the fit between or­
ganization and contingencies leads to high performance. There is no the­
ory of why an organization would move out of fit into misfit. Donaldson
(2001) explained that the organization moves out of the fit because one or
more of the level of the contingencies changes, like an increase in size, the
development of technology, and the change of the market. He also ex­
plains that it is organizational performance that drives changes in these
contingencies, which in turn results in the change of organizational
structure. In this case, the fit between organization and contingencies
leads to high performance, and the high performance causes the changes
of the level of the contingencies, resulting in the changes of organizational
structure. Thus, the change of organization is an ongoing process and the
interaction between organization, performance and contingencies is a
circling process.

The term ‘quasi-fit’ means that the organization will move towards fit but
never attain it completely. Traditional contingency theory tends to have an
implicit view that management knows exactly what a fit an organization
should be in. For example, contingency theory holds that as size increases,
an organization should increase its level of formalization. However, few
people, apart from researchers, know the regression equations that specify
the level of formalization that fits size (such as Child 1973, 1975).

102
Moreover, to apply that knowledge prescriptively, management would
need to know the required score of its organization on the scale used in the
research to measure formalization (Pugh et al., 1968). Even if a manager
knew the quantitative level, variables such as formalization are abstract
and so not directly actionable (Pfeffer, 1997). Thus, managers might more
plausibly only know the direction in which their organization structure
should move to. But it is not plausible for them to know where they should
stop so that they can get the full fit. Thus, the term quasi-fit turns out to be
useful. Donaldson (2001) suggested that organizational adaptation is a
move into a quasi-fit, and organizations in misfit will only rarely, and to a
degree with luck, move into full fit. They will much more typically move
toward fit, but attain only quasi-fit. That is to say, the organization will
move closer to fit but not attain fit completely. Meanwhile, the argument
from SHRM studies is also consistent with this quasi-fit idea. Tyson (1995)
argued that strategy is self-emergent, which implies a constant process of
modification as it is implemented. In a sense, strategy is always about to
be but never exists. Thus, the role of HR and the practices and policies of
the function are subject to continuous negotiation and review within the
process of organization.

Thirdly, Donaldson (2001) introduced the argument of ‘fit as het­

ero-performance’. Traditional contingency theory holds that fit is a line of
iso-performance. This holds that the performance of each fit is the same as
any other fit, so that the performance produced by a fit of high level equals
to low levels of the contingency (Woodward, 1965). Neo-contingency
theory argues that fit is a line of hetero-performance on which each point
along the line (corresponding to each higher value of the contingency
variable) is higher in performance than the one before it. Also, misfit is
also hetero-performance, so that the same degree of misfit produces the

103
Table 2: A Comparison between Contingency and Neo-contingency Theories
Contingency theory Neo-contingency theory
Determinism o f certain variables on Reciprocal interaction and functional
management processes (Donaldson, equivalence (Swan et al., 1999)
2001)
Unidirectional interaction (Donaldson,
2001)
Universal effect (e.g. Blau, 1970; Kerr et Placing emphasis on the cultural factors
al., 1964; Pugh et al., 1969) of a firm’s location (Sorge and Maurice,
1990; Sorge, 1991)
Seeks to understanding (1) the interrela­
tionships within and among subsystems
as well as between (2) the organization
and its environment and (3) to define
pattern of relationships or configurations
of variables (Kast and Rosenzweig,
1985)
Organizational effectiveness results from Fitting link-up of the societal effect
‘fitting characteristics of the organiza­ framework, which roughly maintains that
tion, such as its structure, to contingen­ organizational structures and processes
cies that reflect the situation o f the or­ are interdependent with the business
ganization’ (Bums and Stalker, 1961; strategy and the market segment unto
Lawrence and Lorsch, 1967; Woodward, which a firm launches itself (Donaldson,
1965) 2001)
Situational approach and Helps to revolutionize the static assump­
non-prescriptive (Haimann et al., 1978) tion o f the traditional contingency theory,
which could be analysed through a real­
istic and dynamic approach (Miles and
Snow, 1978)
Tries to respond to such criticism of the
traditional thinking o f the contingency
theory (Donaldson, 2001)
Source: Ramirez and Fomerino (2007, p929)

higher performance at higher levels of the fit line. The work of Castro and
Higgs (2008) can support the argument of ‘fit as hetero-performance’.
They, drawing on Miles and Snow’s (1978,1984,1994) work on business
strategy, HR strategy and dynamics of fit (tight fit, minimal fit and misfit)
and using a survey of managers, tested how the alignment between busi­
ness strategy and HR strategy impact performance. One of their interest­
ing findings was that organization achieved minimal fit between business
strategy and HR strategy outperformed those having tight fit. Further
scrutiny is needed to be placed on the complexity of fit-performance

104
linkages, this can to certain extent support that the
fit-as-hetero-performance argument.

Sorge (1991) argued that neo-contingency theory abandoned some earlier

deterministic concepts. Out has gone the idea that environment and con­
text determine organization uni-directionally, and in came the concept of a
reciprocal conditioning between organization, context and environment.
Ramirez and Fomerino (2007) summarised the distinctions between con­
tingency theory and neo-contingency theory (see Table 2).

Previous SHRM literature, using a neo-contingency approach has mainly

focused on cross-national or cross-cultural studies, which was consistent
with the first line of arguments in neo-contingency theory. They often
examined the moderating effect of national culture on the organizational
structure and its consequent organizational performance (Sorge, 1991;
Ramirez and Fomerino, 2007). But there has been little work on the
second aspect of neo-contingency theory: the reciprocal effects of or­
ganizational internal variables and the dynamic assumptions of the in­
teractions between these variables. Thus, this research’s aim is to theo­
retically fill this gap by proposing a dynamic model illustrating the re­
ciprocal interactions between organizational internal variables.

4.3 Conceptual model

According to Dubin (1976), theory is an attempt to model certain aspects
of the empirical world. Wright and McMahan (1992) went on to argue that
the theories, if accurate, fulfill the objectives of prediction (knowledge of
the outcome) and understanding (knowledge of the process) regarding the
relationships among the variables of interest. Thus, it is believed that a

105
good theory enables one not only to predict what will happen given a set
of values for certain variables, but also to understand why this predicted
values should result.

A strong research model has great value to both researchers and practi­
tioners. Practitioners are primarily concerned with the accuracy of pre­
diction of a theoretical model in order to guide their decision making.
Therefore, an accurate theoretical model allows for better decision mak­
ing in uncertain conditions. Theoretical researchers have greater concern
for understanding the why behind the prediction. For them, a good model
enables them to test the model and revise it to increase the accuracy
(Wright and McMahan, 1992).

Based on the research interests and the literature reviewe in previous

chapters, a conceptual model reflecting the five main research concepts
and their relationships is proposed. The five research constructs are:

1) HRM Policy Configurations (HRMPC).

2) Business Strategy (BS);
3) Strategic Roles of HR Function (SRHR);
4) Organizational Performance.
5) Organizational Contextual Factor (OCF)

Three theories, contingent-configurational SHRM modelling perspective

(Lepak and Shaw, 2008), competence and resource based strategy for­
mulation theory (Andrews, 1998) and the strategic role of HR function
(Storey, 1992; Ulrich, 1997, 1998), are drawn on to develop the concep­
tual model. The development of the conceptual model is divided into two

106
steps based on these three theories respectively, which is explained in
detail in the following section.

4.3.1 Conceptual Model (part A): Contingent-Configurational Perspec­

tive and Competence-Resource-Based Strategy Formulation Theory

4.3.1.1 Theoretical Background and Hypotheses

In order to test the links between business strategies, HRM and organiza­
tional performance, this thesis draws on two theories: contin­
gent-configurational perspective of the SHRM (Lepak and Shaw, 2008)
modelling and competence-resource perspective of strategy formulation
(Andrews, 1998).

From Business Strategy to HRM, then, to Organizational Performance

The contingent-configurational perspective of SHRM modelling argues
that the effect of SHRM configurations is contingent upon certain con­
tingencies. It combines contingency perspective and configurational
perspective of SHRM modelling. Thus, there are two groups of core
factors in this type of SHRM model: HRM policies and contingent factors.
According to configurational perspective, HRM is viewed as pattern of
multiple factors (practices, policies, programmes, or functions), con­
structed based on the fit between these factors, which will generate supe­
rior organizational performance. This research draw on a configurational
approach to construct HRM policy configurations, and argues that these
HRM configurations positively predict organizational performance, and
also argue based on contingent approach that business strategies posi­
tively predicts the adoption of these HRM policy configurations. Based on
contingent-configurational perspective, the links between business
strategies, HRM and organizational performance are contingent upon
organizational contextual factors.

107
Deconstructing the organizational performance Construct
There are some points concerning the organizational performance and its
measures worthy of discussion. These points were noted by Dyer and
Reeves (1995), Roger and Wright (1998), Wright and Sherman, (1999),
Colakoglu et al. (2006). Dyer and Reeves’s (1995) work is useful. They
suggested that measures of organizational performance in HR research
may vary based on the measure’s level of proximity to the HR practices.
According to their categorization, HR practices have the most immediate
impact on employee outcomes since employee outcomes such as turnover,
absenteeism, job satisfaction, commitment and motivation, are in a closer
line of sight to HR practices.

They propose that HR practices also have the strongest effect on such
employee outcomes, as these outcomes are to some extent the initial goal
and include more macro level outcomes associated with aggregates of
individuals’ efforts, such as indicators of productivity, quality of products
and customers services, which constitute the second category of per­
formance, known as organizational outcomes.

The third category of performance noted by Dyer and Reeves (1995)

encompasses financial accounting outcomes, such as ROA, ROL, and
profitability. Finally, the most distal performance measure to HR practices
is the capital market outcome, such as stock price, growth and returns.
V }

Linking Elements o f Organizational Performance

Note that implicit in this model of organizational performance’s elements
and structure (Dyer and Reeves, 1995; Huselid, 1995; Truss and Gratton,
1994), is the basic idea that outcomes can be differentiated by hierarchical
levels, with outcomes at one level contributing (along with other factors)

108
to outcomes at the next level, while each model differs in the number of
levels and the exact outcomes. In this research, the hierarchical effect of
outcomes at different levels is considered. Roger and Wright (1998)
summarized the different measures of organizational performance in
SHRM research, and categorized them into four types, namely, HR out­
comes, organizational outcomes, financial accounting outcomes and Fi­
nancial Market Outcomes (FMO).

This research focuses on the reciprocal interactions between internal or­

ganizational variables, so only three orders of outcomes proximal to
HRPP are incorporated. They are HR outcomes, organizational outcomes
and financial accounting outcomes. Dyer and Reeves (1995) suggested
that the organizational outcomes included productivity, quality and ser­
vice, and so on. The financial accounting outcomes included the outcomes
like Return on Invested Capital (ROIC) or Return on Assets (ROA) and
profitability.

Based on the discussions above, there are two points which need to be
clarified. First, HR outcomes play a mediating role between HRM and
organizational outcomes, and between HR outcomes and financial ac­
counting outcomes, while organizational outcomes mediate the link be­
tween HR outcomes and financial accounting outcomes, and the link
between HRM and financial accounting outcomes. Second, the organiza-
V* '

tional outcomes play a mediating role between HR outcomes and financial

accounting outcomes. Second, changes in HR outcomes, organizational
outcomes and financial accounting outcomes all influence the adoption of
business strategies.

109
Linking Organizational Performance to Business Strategies
The Harvard framework of HRM (Beer et al., 1984, p27) pointed out,
‘Ideally, then, business strategy should influence HRM policies and
practices. At the same time, available human resources as well as mana­
gerial societal values should inform decisions about business strategy.5
According to their map of the HRM territory, HRM policy choices were
influenced by stakeholder interests and situational factors, while HRM
policies result in HR outcomes, and via HR outcomes, influence
long-term consequences, like individual societal well-being. The note­
worthy point was the influence of the long-term consequences on the
stakeholder interests and situational factors, which contained business
strategy. This was probably the earliest model linking organizational
performance to business strategies. But this model did explain how the
link worked.

An explicit explanation of how the link from organizational performance

to business strategies was given by Donaldson (1999) in his performance
driven organizational change theory. He viewed organizations as portfo­
lios, that is, as investments subject to different levels of risk and whose
performance may be strongly, weakly, or negatively correlated. And ac­
cording to neo-contingency theory, if the organizational performance is
good, organization may change its organizational variable, like size and
business strategies. When the organizational performance is poor, or­
ganization would change the structure to achieve a satisfied level of or­
ganizational performance. This theory contributed to the literature by
explaining why and how the organizational performance influenced or­
ganizational variables. But it was very difficult to apply this theory into
research, especially to operationalize and judge the level of organizational
performance, and the level of fit.

110
This thesis draws on competence and resources perspective (Andrews,
1998, Hamel and Prahalad, 1998). According to Andrews (1998), strategy
is determined by both internal competence-resource and external oppor­
tunities. The external opportunities are reflected by technology, ecology,
economics, industry, society, politics, while the internal competence in­
clude by financial competence, managerial competence, functional
competence, organizational competence and reputation history. Per­
formance-driven change suggests that high performance generates surplus
resources, including profits and cash flow, enhanced debt capacity, and a
higher share price that allows quality financing. These resources are sur­
plus in that they are additional to the resources already committed to
present operations. Surplus resources are therefore available to hind
growth in the organization, such as hiring new employees, opening new
branches, launching new products or services, purchasing more advanced
technology, and acquiring other firms. In this case, high performance
mainly refers to financial accounting outcomes, which generates financial
support for the growth of the organization. The Business Strategy of the
whole organizational will change accordingly.

This thesis uses the organizational performance’s measurements to reflect

both the achievement of enterprises and the competences and resources,
which can be used to influence the strategy formulation. Based on the
discussion of deconstructing organizational performance construct section,
it can be seen that different elements of organizational performance gen­
erate various competences, capabilities and resources. HR outcomes and
organizational outcomes provide different organizational and managerial
competences, while financial accounting outcomes provides financial
resources. As a result, the different elements of the organizational per­
formance can influence the formulation of business strategies. HR out­

lii
comes generate employee outcomes such as turnover, absenteeism, job
satisfaction, commitment and motivation. These outcomes are crucial for
the use of cost-reduction and quality-enhancement strategy. Organiza­
tional outcomes contain productivity, quality of products and customers
services, which are necessary to the quality-enhancement and
cost-reduction, and the plenty financial resource can support innovation.
Thus, the links between different elements of organizational performance
and business strategies are established.

A conceptual model based on the discussions above is presented in Figure 4

Business HRM HR Organizational Financial

Strategies Polices Outcomes Outcomes Accounting
Outcomes

Figure 4: Conceptual m odel part A - the effect o f business strategies on HRM policies and
the mediating effects o f H R outcomes and organizational outcomes between HRM policies
and financial accounting outcomes and the impacts of HR outcomes, organizational out­
comes and financial accounting outcomes on business strategies

4.3.2 Incorporating the Strategic Role of HR Function

4.3.2.1 The Changing Sole of HR

The changing role of HR to play a strategic role of HR function in strategy
formulation has been discussed and accepted widely. It has been argued
that HR should focus on the core and strategic tasks of the organization
and should devolve the peripheral tasks to line managers or be subcon­
tracted to HR services providers (Mohrman and Lawler III, 1998; Ulrich,

112
1998). Legge (1978) differentiated HR roles into conformist innovator,
deviant innovator and problem-solver. Tyson and Fell (1986) developed a
functional typology of HR role, based on a metaphor for managing a
construction operation, and distinguished between ‘clerks of works’, and
‘architects’. Mohrman and Lawler III (1998) suggested that HR should
have a full partnership role in four key business processes. They are de­
veloping strategy, designing the organization, implementing change, and
integrating management. Each role varies on a continuum according to the
extent of strategic orientation, based on the amount of discretion allow­
able, the focus on the long term rather than on short-term priorities, and
integration with business goals. Storey (1992) devised a two-dimensional
model that highlights the HR tactical versus strategic role and also inter-
ventionary versus non-interventionary HR activity (see theFigure 5).

Another widely used model of new HR roles was proposed by Ulrich

(1997, 1998). He acknowledged that there is a ‘good reason for HR’s
beleaguered reputation. It is often ineffective, incompetent and costly; in a
phrase, it is value-sapping’ (Ulrich 1998, p i24). In order to overcome
these disadvantages, he argued that HR needs to adopt four roles: strategic
partner, administrative expert, and employee champion and change agent
(see Figure 6).

The SP role means that HR acts as a partner in strategy execution, not in

V 1
the making of strategy, but in ensuring that it is developed and put into
effect. The administrative expert role requires that HR acts as an expert in
the way that work is organized and executed, and delivers administrative
efficiency both in terms of its own function and for the whole organization,
typically through information technology. Employee champion depicts a
role that HR acts as a vpice for employees both in representing their

113
concerns to senior managers and in working to improving their contribu­
tion, their commitment and engagement, the strategic role of HR function
in strategy implementation is a role that HR acts as an agent of continuous
transformation, shaping processes and a culture that together improve the
organizations capacity for change (Ulrich, 1998).

Combining the arguments on the changing role of HR and the call for
HR’s further involvement into strategic decision-making process, this
research adopts HR’s Strategic involvement role and organization the
strategic role of HR function in strategy implementation to investigate the
effect of HR in the whole SHRM mechanism.

Strategic

Change Adviser
Maker

Interventionary N on-interventionarv

Regulator Handmaiden

Tactic

Figure 5: Four Roles of personnel managers (Source: Storey, 1992)

114
 Strategic
and
Forward-looking

Strategic Change
Partner Agent

Activities
Management of
Management
of Processes People

Administrative Employee
Expert Champion

Operational
and
Day-to-day

Figure 6: Four Roles of HR (Source: Ulrich, 1998)

In this research, the interest is on the HR roles related to business strate­

gies and HRM policy configurations. Additionally, to be consistent with
the basic principle of a neo-contingency approach, namely, the dynamic,
reciprocal interaction between organizational internal variables, this re­
search seeks to find a mechanism that enables the interaction or dynamic
interactions between business strategies and HRM policy configurations.
The author argues that HR plays a dual role, which helps both the adap­
tation of the business strategies and change of HRM policy configurations.
Specifically, this research adopts the strategic role of HR function in
strategy formulation and the strategic role of HR function in strategy im­
plementation and argues that BP influences the adaptation of business
strategies and the strategic role of HR function in strategy implementation
exerts impacts on the HRM policy configurations. The relationships be­
tween business strategies, HRM policy configurations and HR roles are
depicted in Figure 7.

115
There are four relationships in this conceptual model. To be consistent
with the conceptual models Part A, the relationship between business
strategies and HRM policy is still named as 1. Relationship 5 depicts the
hypothesis that Strategic Partner Role influences the adoption of business
strategies. Then, the relationship number 6 means that the strategic role of
HR function in strategy implementation impacts HRM policy, which is
consistent with Ulrich’s (1998) theoretical work and Ding and Akhtar’s
(2001) empirical findings of the mediating role of HR strategic level.
Relationship 7 is the influence of business strategies on strategic role of
HR function in strategy implementation.

Strategic Strategic
Role of HR Business Role of HR HRM
Function in Strategies Function in Polices
Formulating Implementing
Strategy Strategy

Figure 7: Conceptual Model Part B - The Effects of Strategic Role of HR between Business Strategy
and HR Configurations

4.3.3 The Complete Conceptual Model: Combining Part A and Part B

The conceptual model is now complete (see Figure 8). There some note­
worthy points in this conceptual model. First, this model distinguishes
itself from previous ones by making the organizational internal system a
dynamic one, drawing on the neo-contingency ideas of quasi-fit, recip­
rocal interactions and performance-driven change. Second, this research
adopts a proactive approach to HR role. It believes that HR creates
competitive advantage not only by strategy implementation but also by
decision-making involvement. It introduces human factors into the

116
neo-contingency theory, as Child (1972) suggested that it is the top
managers’ interests that play a crucial role in organizational change.
Moreover, the strategy-as-practice approach argued that as people or
certain groups’ activities in an organization influence organizational
strategy and organizational structure change then, consequently, them­
selves and their activities are influenced by changing organizational
strategy and structure (Johnson et al., 2003; Whittington, 2006). This re­
search adopts these ideas and argues that functional groups (e.g. HR) and
their roles (e.g. strategic role of HR function in strategy formulation and
strategic role of HR function in strategy implementation) exert influence
on the organizational strategy and structure, and in turn are influenced by
the changing strategy and structure.

In the complete version of the conceptual model of this research, there are
fourteen sets relationships between those variables mentioned earlier.
This model present a helix-cycle mechanism, which forms a dynamic
system of SHRM containing business strategies, strategic roles of HR
function in strategy formulation and implementation, HR outcomes, or­
ganizational outcomes, financial accounting outcomes.

117
 Strategic Strategic
Role of HR Business Role of HR HRM HR Out­ Organizational Financial
Function in Strategies Function in Polices comes Outcomes Accounting
Formulating Implementing Outcomes
Strategy Strategy

Contextual Variables Contextual Variables Contextual Variables Contextual Variables

Contingency and/or control variables at organizational level:

Size, age, technology, unionisation, industry sector, etc

Figure 8: The Conceptual Model of A Dynamic System

118
 Business HR HR Organiza­ Financial
Strategies Polices Outcomes tional Accounting
Outcomes Outcomes

Figure 9: Empirical Model Tested in this thesis

119
4.4 Empirical Model and H ypotheses Generation
The empirical model tested in this research is presented in the Figure 9,
where 5 constructs are incorporated and 2 types of effects are to be tested.
The 5 constructs are business strategies, HRM policies, HR outcomes,
organizational outcomes and financial accounting outcomes. The 2 types
of effects are direct effects on business strategies on HRM policies and the
mediating effects o f HR outcomes and organizational outcome.

4.4.1 Business strategies and HRM policies

An organization’s set of HRM policies will be effective if it is consistent
with business strategies (Gomez-Mejia and Balkin, 1992). In this sense,
business strategies are followed by HRM policies in determining business
performance. Business strategies used in this research is Porter’s generic
competitive strategies typology, namely, innovation strategy, cost reduc­
tion strategy and quality enhancement strategy. The innovation strategy
emphasizes developing products and services that are different from those
of competitors. Overall, an innovation strategy needs people to work
differently. For companies pursuing an innovation competitive strategy,
the profile of employee role behaviours includes a high degree of creative
behaviour, a longer-term focus, a relatively high level of cooperative and
interdependent behaviour, a moderate degree of concern for quality, a
moderate concern for quantity, an equal degree of concern for process and
results, a greater degree of risk taking, and a high tolerance of ambiguity
and unpredictability (Schuler and Jackson, 1987). From an open system
and human competence perspective, the companies using innovation
competitive strategy are more likely to use competence acquisition,
competence displacement and behaviour coordination (Wright and Snell,
1991). In terms of the HR practices, innovation strategy requires more
investment in training HR to acquire new skills and knowledge, more

120
efforts on building a cooperative management-employee relationship to
promote the coordination and interdependence between people (Schuler,
1989), more flexibility and incentives in compensation to encourage the
creativity of people, but less HR planning especially strict job design to
grant people more freedom and less control (Chow et al., 2008). Based on
the discussions above, hypothesis 1 is:

Hla: innovation strategy has (i) negative or no significant in­

fluence on HR planning and (ii) positively influences on com­
pensation, training and management-employee relationship.

It has been found that a quality enhancement strategy is dominant in

Chinese firms (Ge and Ding, 2005; Ding and Akhtar, 2001). A quality
enhancement strategy focuses on improving product and service quality.
The essence of a quality strategy is to get employees committed to quality
and continuous improvement in order to increase product reliability and
customer satisfaction (Garvin, 1993, Ding and Ashtar, 2001). The process
of enhancing quality requires broadened employee responsibilities, such
as troubleshooting, problem solving, quality assurance planning, sched­
uling, maintenance, and so on. Schuler and Jackson (1987) described the
profile of employee behaviours, for quality enhancement strategy, which
includes relatively repetitive and predictable behaviours, a more
long-term or intermediate focus, a high concern for quality, high concern
for process (how the goods and services are made or delivered), a modest
amount of cooperative, and interdependent behaviour, a modest concern
for quantity of output, low risk-taking activity, and commitment to the
goals of the organizations. Writers from open system and human com­
petence perspective suggested that companies using quality competitive
strategy are more likely to use competence retention, competence utiliza-

121
tion and behaviour control (Wright and Snell, 1991). In terms of the spe­
cific HRM policies, the quality-enhancement strategy needs more training
and development to cultivate skilled employees (Sanz-Valle et al., 1999),
stress on compensation to retain the competent employees (Wright and
Snell, 1999) and clearly define the job and make HR planning to make the
required skills and production processes matching the needs of good
quality (Shuler and Jackson, 1987), while as the quality enhancement
needs control on the production process, the quality-enhancement strategy
not cooperative.
H2: Quality-enhancement strategy has positive influence on
HR planning, compensation, training and management-employee
relationship.

A cost-reduction strategy attempts to be the lowest cost producer to gain a

competitive advantage. Organizations pursuing a cost-reduction strategy
emphasize efficiently managing a low-skilled workforce (Youndt, et al.,
1996), and implement tight controls, overhead minimization, and the
pursuit of economies of scale. The central focus of these measures is to
increase productivity, that is, output cost per person. This can be achieved
by reduction in the number of employees and/or a reduction in wage levels.
Other options to realize the cost-reduction is increasing the use of
part-time employees, subcontractors, work simplification and measure­
ment procedures, automation, work rule changes, and job
^ 1
assignment
flexibility. The profile of employee role behaviour are relatively repetitive
and predictable behaviour, a rather short-term focus, primarily autono­
mous or individual activity, modest concern for quality, high concern for
quantity of output (goods or services), primary concern for results, low
risk-taking activity, and a relatively high degree of comfort with stability
(Schuler and Jackson, 1987). Based on HR open systems and HRM

122
competence theory, he companies using cost-reduction competitive
strategy are more likely to use competence retention, competence dis­
placement and behaviour control (Wright and Snell, 1991). As to the
specific HRM policies, a cost-reduction strategy maximize efficiency by
using narrowly designed jobs, close monitoring, and minimal levels of
training and development (Schuler, 1989; Sanz-Valle et al., 1999). Thus,
the hypothesis concerning relationship between cost-reduction and HRM
is:

H3: Cost-reduction strategy has (i) positive influence on HR

planning and (ii) negative influence on compensation, training
and management-employee relations.

4.4.2 H RM policies and organizational performance

HRM configurations:
From a perspective of configurational approach, organizational contextual
factors tend to commonly occur together and form coherent patterns to
affect organizational performance. In other words, the configurational
approach is concerned with how the pattern of multiple independent
variables is related to a dependent variable rather than how individual
independent variables are related to the dependent variable (Delery and
Doty, 1996). A distinguishing feature of strategic human resource man­
agement research is an emphasis on HR systems, rather than individual
HR practices as a driver of individual and organizational performance
(Lepak et al., 2006).

Guest et al (2004) identified five approaches to formulate HR systems,

namely a straightforward measure of reliability (eg Crobanch alpha),

123
factor analysis (eg principle component analysis, or confirmatory analy­
sis), cluster analysis, regression analysis with interaction variables, and
sequential tree analysis.

Some configurations are assumed to be ideal types that are theoretical

constructs rather than empirically observable phenomena. As the con­
figurational approach needs to identify distinct HR systems, which in­
clude internally consist HR practices, to manage employment relation­
ships, it is consistent with concepts of ‘vertical5 and ‘horizontal5 fits
(Wright and McMahan, 1992). Perhaps the most well known configera-
tional study was conducted by Huselid (1995). Huselid (1995) demon­
strated that a system of HRM practices he labelled a high performance
work system (HPWS) was positively and significantly associated with
important organizational outcomes.

Delery and Doty (1996) provided two typical kinds of employment sys­
tems: a market-type system and an internal system. The market-type
system was characterized by hiring from outside an organization, pro­
viding little training, and evaluating performance through the use of re­
sults measures. Employees who worked under this system were com­
pensated or rewarded for individual performance as measured by the
output measures. Little job security and voice were granted to the em­
ployees. The internal system was characterized by the existence of an
internal labor market. Extensive socialization and training were common.
Performance was assessed through behaviour, and appraisal feedback was
given for developmental purposes rather than evaluative purposes. A high
degree of employment security existed. Lepak and Snell (1999, 2002)
identified four configurations of HRM practices: commitment-based,
productivity-based, compliance-based and collaborative-based HRM

124
systems that were used for different groups of employees within organi­
zations depending on their relative strategic value in contributing to or­
ganizational objectives.

Organizational performance:
Although evidence has been accumulating, there is still lack of the con­
clusive evidence of the decisive effects of HRM policies on organizational
performance, in terms of both the function (what effects) and form (how
impact). Particularly, a lack of solid evidence in HRM policies’ influence
on financial performance is still obvious (Boselie et al., 2005). Thus, it is
necessary to investigate the mechanism through which the HRM influence
organizational performance.

It has been suggested in literature that HRM should be more strategically

anchored, and related to more proximal outcomes, which in turn improve
the more distal outcomes (Lepak et al., 2006). According to, Dyer and
Reeves (1995) HRM policies has the direct impact on HR outcomes, and
organizational outcomes, and the HR outcomes mediates the HRM poli-
cies-organizational outcomes relationship, while, HRM policies have
comparatively weak impact on distal outcomes, such as financial ac­
counting outcomes and financial market outcomes. Boselie et al. (2005)
summarized the commonalities in HRM and performance research, and
suggested that HR outcomes partially mediated the impact of HRM prac-
tices on organizational outcomes, which was called internal performance
in their research. The organizational outcomes consequently impact fi­
nancial performance. In this sense, the hypotheses developed concerning
HRM policies’ influences on organizational performance are:

125
 H4a: HRM policies have positive impact on (i) HR outcomes,
(ii) organizational outcomes and (iii) no significant impact on fi­
nancial accounting outcomes
H4b: HR outcomes have positive impact on (i) organizational
outcomes, and (ii) financial accounting outcomes
H4c: organizational outcomes have positive impact on finan­
cial accounting outcomes

H5a: HR outcomes mediate the relationships between HRM

policies and organizational outcomes
H5b: organizational outcomes mediate the relationship be­
tween HR outcomes and financial accounting outcomes.

4.4.3 M oderators and M ediators Used in This Research

4.4.3.1 Mediators in This Research

The mediators used in this research are HR outcomes, and Organizational
outcomes. Based on the hypotheses 5, the HR outcomes mediate the ef­
fects of HRM policies on the organizational outcomes and financial ac­
counting outcomes, the organizational outcomes mediate the effects of
HRM polices and HR outcomes on financial accounting outcomes.

4.4.3.2 Moderators as Control Variables in Multiple Regressions

The moderators are used as control variables in multiple regressions. They
are first entered into regressions as a block before the main independent
variables being entered, to test if the control variables strengthen or
weaken main effects between independent variables and dependent
variables.

126
The control variables were selected based on previous research. 7 vari­
ables were determined to be tested as a control variable. They are size, age,
unionization, the strength of Chinese workplace culture, ownership, or­
ganizational life cycle and business sector (Fields, et al., 2000; Ding and
Akhtar, 2001; Chow, et al., 2008; Ngo, et al., 2008). Organizational size
and organizational age were measured by asking ‘how many full-time
employees are employed in your company’ and ‘how many years has your
company been operating in China’, workplace culture contains four items
‘embracing paradox’, ‘directness of interpersonal approach’, ‘importance
of saving face (mianzi)’, ‘respect for position and authority’. It was
measured with a five-point Likert-type scale by asking the strength of the
culture in your company. ‘1’ means very weak while ‘5’ means very
strong. Exploratory factor analysis showed that this factor explained
63.038% of the variances and the Cronbach’s alpha value is .804. Pres­
ence of union, organizational life cycle, ownership and business sector
were used a dummy variables in the analysis.

H6: the relationships proposed by H1-H5 are moderated by (i)

organizational age, (ii) organizational size, (iii) workplace culture,
(iv) union presence, (v) ownership, (vi) organizational life cycle,
(vii) business sector.

4.5 M easurem ents

Conceptualization produces a specific meaning for a concept for the
purpose of research. It involves describing the indicators that the re­
searcher will use to measure research concepts, and the dimensions, or
specific aspects, of a concept (Babbie, 2001). The main concepts of this
research are business strategies, organizational characteristics, HR Stra­

127
tegic Roles (HRSR), HRM policies and practices, HR outcomes and or­
ganizational performance.

4.5.1 Business Strategic

Table 3: Business strategy

Concept Construct Dimensions Items

Efforts on in­
Innovative investing
novation
Production Innovative developing
Innovation process
innovation Innovative introducing
Delivering new products and ser­
New products
vice
The emphasis on reducing the
costs o f labour to produce existing
products or services.
The emphasis on reducing the
Reducing cost
Cost costs o f materials to produce ex­
Reduction isting products or services.
The emphasis on controlling in­
Business
ventory
Strategy
Improving The emphasis on improving op­
efficiency erational efficiency
The emphasis on devoting time to
quality control
The emphasis on working with
customers or suppliers to improve
Effort to im­ quality of product or service
prove quality The emphasis on monitoring qual­
Quality
ity circles
Improvement
The extent to which your com­
pany’s quality management pro­
gram are effective
Improving the The emphasis on improving the
quality of qual­ quality o f existing products or
ity services

The strategic factors refer to the strategic focus on cost, quality, innova­
tion market strategy (Miles and Snowl984; Porter, 1985; Schuler and
Jackson, 1987; Schuler, 1987; Wright and Snell, 1991; Youndt, et al.,
1996, Wright, et al., 1998; Ding and Akhtar, 2002). A detailed review of

128
the strategies used in the previous literature was presented in the previous
chapter. While researchers have used various ones, the goals of the
strategies can be summarized into three categories: increasing innovation,
reducing cost, and improving quality. These three strategic goals are the
business strategies employed in this research model (see Table 3 ).

4.5.2 The Adoption of HRM Practices and Policies

This research, in order to examine the different adoptions of SHRM
practices and build up a measurable variable system, employs the series of
work by Schuler and MacMillan (1984), Schuler (1987) Jackson et al.
(1989), Lepak and Snell (2002), and Ramirez and Fomerino (2007). In
these pieces of work, the researchers have constructed and used HR
practices ‘menus’ which can lead to different employee role behaviours to
support the companies’ strategic needs. The details of the HR practices
menus are in Table 4 to Table 9.

Table 4: HR Planning
Short term HR planning LongtermHRplanning

Informal HR planning ....................... Formal HR planning

Implicit job analysis ....................... Explicit job analysis

Ambiguously defined job descrip- ....................... Clearly defined job description
tion
Low employee involvement of HR High employee involvement
planning of HR planning

The contents Job is simple The contents Job is complex

Table 5: HR Staffing

129
 T, , , External recruitment
Internal recruitment sources ------------------------
sources
T • ‘4. a selection
Limited 1 *■' .
procedure Extensive selection
--------------------------------------- ,
procedure
t r •+ Explicit recruitment
Implicit recruitment criteria -------------------------------------- ..
criteria
c • vu r- » I,, Capability-and
Fusion with firm s culture , ; .
skill-orientation
Closed procedure Openprocedure

Table 6: HR Appraising

Performance Oriented Behaviour Oriented

rj-11 . ,. . . The main objective is to
The mam objective is to ., J ,
. r • identify employees
provide criteria for pay rise ------------------------ . ,.
. .• weakness and improve
and promotion r
v performance
HR specialists in charge of High employee participa-
the appraisal schemes tion
Individual criteria Group criteria
Conduct appraisal activities Conduct appraisal activi-
frequently, such as weekly or ------------------------ ties occasionally, such as
monthly based quarterly or yearly based

Table 7: HR Compensation

Low base salaries -------------------- High base salaries

Few perks Manyperks
Standard, fixed package Flexiblepackage
No incentives Manyincentive
Short term incentives ^ Long term incentives
High employment se-
No employment security -------------------- 0 curity

No participation -------------------- High participation

Position in work Skills in work

Seniority oriented Meritoriented

130
Table 8: HR Training and Development
Employees do not need to go Employees need to go
take training programmes take training pro-
every certain length o f time grammes, evel? “ rtam
length o f time
Narrow and specific appli- Broad and general ap-
cation plication
Limited training Extensive training

Training credits are not nec- Training credits are

essary for promotion---------------- -------------------- tightly linked to pro-
motion

Productivity orientated -------------------- Quality of work life

oriented

External consultants -------------------- Internal experts

Off-post training On-post training

Hierarchy Egalitarian

Seniority oriented Merit oriented

Table 9: Management-Employee Relationship

Some communication -------------------------- Extensive communication

Conflicted Cooperative
Management and employee Management and em-
have different facilities ployee have same facilities
No participative manage- ~ .. .
---------------------------- Participativemanagement
ment in company r
XT 1r. -. Widely use self-managed
No self-managed teams ------------------------- ®
b teams
Employee-management , Employee-management
meeting is held only in need meetings is held regularly
M' i .. ,. Regularly providing op-
Most operational mforma- ®. ,. c ,. *.
. . . erational information to
tion is confidential .
employees

Source of table 4-9: adopted from Schuler and MacMillan (1984), Schuler (1987)
Jackson et al. (1989), Lepak and Snell (2002), and Ramirez and Fomerino (2007).

131
4.5.3 The Strategic Roles of HR Function
Table 10: Strategic Roles o f HR_________________
Concept Construct Variable Dimension
Consulted by senior management
Availability o f formal documents
on HR planning to strategic plan­
Adviser to
ners
Strategic role senior man­
Evaluating the current organiza­
HR function in agement
tional strategy and providing sug­
strategy formu­
gestions on change if the current
lation
strategy is inappropriate
(Wilkinson
Consulted by line managers or
and Adviser to
other department
Marchington, other depart­
Help other departments evaluating
1994; Procter ment
employees
and Currie,
HR strategy is consistent with the
1999;
company strategy
Ulrich, 1998) Integration
Be a part o f top management
into the top
management Organization strategy includes HR
issues
Evaluating the current managerial
Strategic
and producing processes and pro­
Roles of
viding suggestions on change if the
HR
current processes is inappropriate
Evaluating the current rewards
system and providing suggestions
Auditing the
Strategic role of on change if the current rewards
organization
HR function in system is inappropriate
architecture
strategy imple­ Evaluating the current managerial
and eliminat­
mentation (Sto­ and producing processes and pro­
ing the resis­
rey, 1992; viding suggestions on change if the
tance
Wilkinson and current processes is inappropriate
Marchington, Evaluating the current people and
1994; provide suggestions on change if
Ulrich, 1998, the current people is inappropriate
Caldwell, 2003) Holding programs to eliminate the
resistance
Explaining the requirement of the
changes and encourage employee
Stimulate the
the support
changes
Holding programs to build em­
ployees capacity for changes
Source: adopted from Wilkinson and Marchington, 1994; Procter and Currie, 1999; Ulrich, 1998;

Storey, 1992; Caldwell, 2003

132
Based on previous work, like Wilkinson and Marchington’s (2005)
categorization of the role of the HR function and Ulrich’s (1998) model of
the HR function, two roles of the HR function reflect the strategic roles of
HR. They are (1) SP and strategic adviser and (2) change agent. Drawing
on the work of Storey (1992), Wilkinson and Marchington (1994), Procter
and Currie (1999), Ulrich (1998), Caldwell (2003), Ding and Akhtar
(2001) and Fields et al. (2000), this concept will be assessed from 16
dimensions, which are illustrated in Table 10.

4.5.4 HR Outcomes
According to Dyer and Reeves (1995), HR outcomes are the most
proximal level of the outcomes which exerts a mediating effect between
HR and organizational performance. Based on previous research, the
construct of HR outcomes is measured in terms of turnover rate, absen­
teeism, staff morale, employee commitment, job satisfaction and the
ability of staff to move between jobs as the work demands (Guest and
Hoque, 1996; Yound et al., 1996; Hoque, 1999). The items used to
measure HR outcomes are presented in Table 11.

Table 11: Human Resource Outcomes

Construct Variable Items

Employee commitment
HR Effective­ Job satisfaction
HR Outcomes
ness
Staff morale
Turnover rate
HR Absenteeism
Efficiency The ability of staff to move between
jobs as the work demands
Source: adapted from Guest and Hoque, (1996); Yound etal., (1996); Hoque, (1999), Roger and

Wright, (1998)

133
4.5.5 Organizational Outcomes and Financial Accounting Out­
comes
Organizational performance consists of two constructs, namely, organ­
izational outcomes and financial accounting outcomes. Organizational
outcomes refer to quality of product, brand image, and satisfaction of
customers or clients. It is inappropriate to directly ask financial indices
such as return of asset, return of equity, since these indices are usually
affected by firms’ size. Thus, financial outcome in this research is meas­
ured by growth rate of sales (Snell and Youndt, 1995,2000), revenue (Bae
and Lawler, 2000) and market share (Delaney and Huselid, 1996). The
measures of this construct are entailed in Table 12.

Organizational Performance
Table 12:
Construct Variable Items
Quality of product
Organizational Public image and good will
Outcomes Satisfaction o f customers of
Organizational clients
Performance Growth rate o f revenues
Financial Ac­
counting Growth rate o f market share
Outcomes Long-run level o f profitability
Source: adapted from Guest and Hoque, (1996); Yound etal, (1996); Hoque, (1999), Roger and

Wright, (1998)

4.5.6 Organizational Contextual Factors (Control Variables)

Jackson and Schuler (1995) divided non-strategic contextual factors into
an internal group and an external group. Internal organizational context
factors include ownership, age and size of firm, internal technology, or­
ganizational structure and union presence. The external organizational
context factors include technology change, industry characteristics, in­
tensity of competition, labour market conditions, political, law and regu­
lation, unionization, location and national culture (Jackson and Schuler,
1989; Huo and Glinow, 1995; Jackson and Schuler, 1995; Fields, et al.

134
2000; Ding and Akhtar, 2001; Fletcher and Fang, 2006; Bozionelos and
Wang, 2007). (see
Table 13). ~

Table 13: Organizational Characteristics and External Environmental Factors

Construct Variables Dimensions(items)
Start-up
Growth
Life Cycle Maturity
Decline
Turnaround
Collectively Owned Enterprise (COE)
Organization
State Owned Enterprise (SOE)
Characteristics
Ownership Foreign Invested Enterprise (FIE)
Privately Owned Enterprise (POE)
Joint Venture (JV)
Number of years since the company
Age
operated in China
Size Amount o f full-time employee
Union Presence The existence o f labour union

Garment
Chemicals and Pharmaceuticals
Industry Sector (Busi­
Electronics and Engineering
ness Sector)
Finance, Banking and Insurance
External Envi­ Sales and Business Service
ronment Factors Others
Embracing paradox,
Directness o f interpersonal approach,
National culture Importance o f saving face (mianzi),
Respect for position authority,
Confucian work values
Source: adapted from Jackson and Schuler, (1989); Huo and Glinow, (1995); Jackson and Schuler,

(1995); Fields, et al. (2000); Ding and Akhtar, (2001); Fletcher and Fang, (2006); Bozionelos and

Wang, (2007).

4.6 Summary
This chapter has presented a conceptual model of SHRM, which differs
from the existing ones by offering a dynamic system of SHRM. It com­
bines human factors and non-human factors in the process of organiza­

135
tional change. This research adopts a neo-contingency approach and
draws on theories in organization studies and HR studies - contin­
gent-configurational perspective of SHRM modelling, competence and
resource based strategy formulation theory and the strategic role of HR
function - and argues that both human and non-human factors drive or­
ganizational change. In terms of the non-human factors, it employs con­
tingent-configurational perspective of SHRM modelling, competence and
resource based strategy formulation theory and argues that HRM policy,
organizational performance and business strategies constitute a circle,
along which the organizational change is driven by organizational per­
formance. Moreover, it goes on further to specify the mediating roles of
HR outcomes and organizational outcomes between HRM policy con­
figurations and financial accounting outcomes. In terms of the SHRR, it is
proposed that the two SHRR, strategic role of HR function in strategy
formulation, influence the adaptation of business strategies on the one
hand. Change Agent mediates the business strategies -HRM link on the
other hand. As a result, the conceptual model is a dynamic model, gener­
ating sustained competitive advantage.

Moreover, the empirical model to be tested in this research was specified

in this chapter, with related hypotheses developed. The moderators and
mediators in this research were explained, and how the variables would be
measured was also detailed.

The next chapter will entail the research methods in this thesis.

136
 Chapter Five

Research Methodology

137
Chapter 5 Research Methodology

5.1 Introduction
In this chapter, details of the research purpose and philosophical stance,
research design, data collection and analysis methods, validity and reli­
ability tests will be explained.

5.2 Research Purpose and Philosophical Stance

5.2.1 R esearch Purpose

There are three types of research purposes: exploratory studies, explana­

tory studies and descriptive studies. Exploratory research is adequate
when the research problem is badly understood. The key characteristic of
this research purpose is flexibility, in other words, as new pieces of in­
formation are available, the search for the solution may change direction
(Ghauri and Gronhaug, 2002). The second type is called explanatory re­
search, also known as casual research, which establishes causal relation­
ships between variables. The emphasis of explanatory research is on
studying a situation or a problem in order to explain the relationships
between variables. In descriptive research, the problem is structured and
well understood. Thus, the key characteristics of descriptive research are
structure, precise rules apd procedures. The objective of descriptive re­
search is ‘to portray an accurate profile of persons, events or situations’
(Robson, 1993, p4). It is necessary to have a clear picture of the phe­
nomena on which you wish to collect data prior to the collection of the
data (Saunders et al., 2003).

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This research intends to explain the relationships between business
strategies, HRM policies and practices, organizational performance and
the strategic role of HR function. Prior to the empirical test, a conceptual
model mapping the relationships between these variables is presented,
based on related theories. But, as Churchill and Lacobucci (2002) stated,
the distinctions between the three types of research design are not absolute
and these three types can be regarded as the three stages of research
process. This research is an explanatory one, which also includes de­
scriptive and exploratory aspects at the initial stage of conceptual model
development. Concretely speaking, it explores the role of HR function in
SHRM system, and argues that HR plays not only strategy-implementing
role but also a decision-making partner role, as well as organizational
performance’s elements structure. Meanwhile, it describes the current
state of the application of HRM policies and practices and SHRM in the
PRC.

5.2.2 Philosophical Stance

Research philosophy helps to clarify the research design and also provide
guidance on the research strategy, relating to the nature of knowledge and
how the knowledge is developed (Saunders et al., 2007). Moreover, the
appropriate research method relies on the philosophical paradigm, the aim
of the research, the context of the study, the nature of the research ques­
tions, and the use of resources. The research paradigm is always examined
from perspectives of epistemological considerations, ontological consid­
erations and methodological stance (Guba and Lincoln, 1998). An epis­
temological issue concerns the question of what is (or should be) regarded
as acceptable knowledge in a discipline. In the context of social science,
the central consideration of epistemology is the question of whether or not

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the social world can and should be studied according to the same princi­
ples, procedures, and ethos as the natural science. The ontological con­
cerns are placed on the very essence of the phenomena under investigation.
The basic ontological questions faced by the social scientists are ‘what is
the nature of reality’ or ‘what is the nature of the knowable?’ (Guba,
1990,p 3). Methodology specifies how the research could be conducted
practically.

The positivist view is that the object of study is defined by objective cri­
teria, rather than human interests and desires. It advocates the application
of the methods of the natural sciences to the study of social reality and
beyond. It seeks to explain and predict what happens in the social world
by searching for regularities and causal relationships between its con­
stituent elements. Some claim that hypothesised regularities can be veri­
fied, others maintain that hypotheses can only be falsified, both would
accept that the growth of knowledge is essentially a cumulative process.
(Burrel and Morgan, 1994)

Positivism encompasses five broad principles: first, only phenomena and

hence knowledge confirmed by the sense can genuinely be warranted as
knowledge. Second, the purpose o f theory is to generate hypotheses and
that will allow for explanations o f laws to be assessed. Third, knowledge
is arrived at through the gathering o f facts that provide the basis for laws.
Fourth, science must be conducted in a way that is value free. Lastly, there
is a clear distinction between scientific statements and normative state­
ments and a belief that the former are the true domain of the scientist
(Bryman and Bell, 2007).

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The main goal of this study is to apply the models and methods of the
natural science to the study of human affairs. Specifically speaking, the
growth of knowledge is essentially a cumulative process and seeks to
explain and predict what happen in SHRM system, especially the causal
relationships between relevant variables. This study is also aimed to
examine the model presented in section 4.4, and the author’s assumption
is that the true nature o f reality can only be obtained by testing theories
about actual objects, processes, or structures in the real world. Thus, this
study employs a hypothetic-deductive approach to theoretical develop­
ment and testing. To sum up, based the nature of this research, this re­
search adopts a positivism philosophical stance.

5.3 Research Design

5.3.1 Deductive Research

Deduction is a view of the nature of the relationship between theory and
research. It entails the development of a conceptual and theoretical
structure prior to its testing through empirical observation. It begins with
abstract conceptualization and then moves on to testing through the ap­
plication of theory so as to create new experiences or observations. The
process of deduction is theory - hypothesis - data collection -findings -
hypotheses confirmed or rejected- revision of theory (Bryman and Bell,
2007).

Specifically, the process of deduction might be divided in to the following

stages: concepts, rules, operationalization, instructions, and testing by
corroboration. Concepts refer to the work through which researchers de­
cide which concepts represent important aspects of the theory or problems
under investigation. In the process of operationalization, rules are created

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for making observations, and a clear definition of what it is researchers are
going to observe is made. In this, indicators, or measures, which represent
empirically observable instances or occurrences of the concepts under
investigation, are created. Also, researchers overtly link the abstract
concepts to something that is observable and whose variation is measur­
able. The linking rules, that is, the rules about when and where an ob­
servable instance of the concept has empirically occurred, are called op­
erationalization. The following stage is about instructions, as operation­
alization enables the construction of clear and specific instructions about
what and how to observe. This enables the testing of hypotheses and
theories by confirming them with the empirical data, which is then col­
lected. Testing by corroboration is the process of testing, by which the
assertions put forward by the theory or hypothesis are compared with the
‘facts’ collected by observation (Gill and Johnson, 2002).

It is noteworthy that the last step of the deduction process involves a

movement that is in the opposite direction from deduction: induction , as
pointed out by Bryman and Bell (2007), as the researcher infers the im­
plications of his or her findings for the theory that prompted the whole
exercise. The logical ordering of induction is the reverse of deduction as it
involves moving from the plane of observation of the empirical world to
the construction of explanations and theories about what has been ob­
served. In sharp contrast to the deductive tradition, in which a conceptual
and theoretical structure is developed prior to empirical research, theory is
the outcome of induction.

The deductive approach is used in this research, employed to guide the

construction and the implementation of this study. The author of this
thesis will apply theories to particular cases and data to explain the par­

142
ticular situation, then to examine and adjust, if possible, the existing
theories through the analysis of data. As Gilbert (2001, p i 9) said, deduc­
tion ‘staring with a theory and using it to explain particular observa­
tions... [It] takes the data about a particular case and applies the general
theory in order to deduce an explanation for the data’.

5.3.2 Quantitative Research

Quantitative research can be construed as a research strategy that em­
phasizes quantification in the collection and analysis of data and that en­
tails a deductive approach to the relationship between theory and research,
in which the accent is placed on the testing of the theories. It has incor­
porated the practices and norms of the natural scientific model, and of
positivism in particular, and embodies a view of social reality as an ex­
ternal, objective reality.

A qualitative research strategy is an alternative research strategy to a

quantitative one. It emphasizes words rather than quantification in the
collection and analysis of data and employs an inductive approach to the
relationship between theory and research. In this the emphasis is on gen­
erating theories, and it rejects the practices and norms of the natural sci­
entific model and of positivism. Additionally, it embodies a view of social
reality as a constantly shifting emergent property of individuals’ creation
(Bryman and Bell, 2007).

Also, qualitative and quantitative research procedures are often regarded

as presenting ‘macro’ and ‘micro’ level perspectives on the social world
respectively. Quantitative research usually involves large-scale empirical
studies using social survey techniques to collect data from representative

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samples of the population drawn from a big area. It holds a high level of
generalization. Qualitative research, in contrast, provides a micro-level
perspective based on case studies or data collected from individuals and
groups. Here the emphasis is on exploring the meaning that events and
situations have for participants (Clark, 2001). In this research, as it fol­
lows a positivist epistemology and a deductive approach, a quantitative
strategy is consequently adopted. It will construct a research model, based
on previous work and theoretical perspectives, and collect primary quan­
titative data. Section 5.4 will outline the arrangement of the research
methods, the data collection methods and the data analysis methods.

5.3.3 Cross-Sectional Study

Cross-sectional research is designed for studies of a particular phe­
nomenon at a particular time, which is called a ‘snapshot5by Saunders et
al. (2003). Saunders and his colleagues refer to longitudinal research as a
‘diary5, which is used to map change in business and management re­
search. A cross-sectional design entails the collection of data on more than
one case (usually quite a lot more than one) and at a single point in time in
order to collect a body of quantitative or quantifiable data in connection
with two or more variables, which are then examined to detect patterns of
association. Also, as this study is a quantitative one and, according to
Bryman and Bell (2007), the cross-sectional design has been placed firmly
in the context of quantitative research, and evaluation of the design drew
on criteria associated with the quantitative research design. In this re­
search, it is the relationships between different variables that the author
wishes to concentrate on. Also, as the research is a quantitative one as
explained above, a cross-sectional research design was adopted to fulfil
the tasks posed by the research.

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5.4 Survey Methods in the People’s Republic of China

5.4.1 Primary Data Sources

Data sources can be divided into two types, primary and secondary, both
of which are employed commonly in SHRM research. Primary data are
those which have to be collected for the first time by the investigator(s)
through observation, experiments or questionnaires. Secondary data in­
cludes pre-existing information gathered by someone else for some other
purpose. These may be internal or external to the organizations researched,
in terms of where they can be found. This research employs primary data
collected from the PRC to test the conceptual model.

5.4.2 Key Informant

The underlying assumption of the key informant approach is that the
person is able to provide opinions and perceptions that are valid reflec­
tions of those of other key decision-makers in the companies. The single
informant approach can be the source of needed information for a new
venture of a relatively small size (Phillips, 1981), and a multi-
ple-informant approach would be very costly in China (Atuahene-Gima
and Li, 2000). The existing literature has revealed that using multiple
respondents to complete the same questionnaire separately is problematic
in Chinese culture because they would view such an approach as implying
a lack of trust in their individual responses. Based on these discussions,
this research applied the single ‘key informant’ approach.

It is argued that the key informant approach has advantages and limita­
tions. The main advantages are that the key information comes directly
from knowledgeable people. The key informant approach often provides
data and insight that cannot be obtained with other methods. However,
inappropriate informant selection could result in biased findings (Chur­

146
chill and Lacobucci, 2002). In this thesis, the informants are from group of
senior managers of firms and directors/deputy directors of HR depart­
ments.

5.4.3 The Questionnaire Translated and Back-Translated

The questionnaire was originally prepared in English and then translated
into Chinese by the author, who is bilingual in both of these two languages,
to establish the equivalent measures. Further, to avoid cultural bias, the
Chinese version was then back-translated into English by another bilin­
gual researcher. Comparison of the two English questionnaires revealed
considerable consistency across translators. Attention was then paid to
any misunderstanding likely to result from the translation. By using
translation and back-translation, it improves the literal accuracy and
maintains equivalent meaning (Harpaz, 1996; Usunier, 1998).

5.4.4 The Questionnaire Development Process

The procedure of questionnaire design has been discussed by researchers
such as Churchill (1991) and Kinnear and Taylor (1991). Churchill’s
(1991) nine-step procedure for developing a questionnaire was adopted in
this research: (1) specify what information will be sought; (2) determine
the type of questions and methods of administration; (3) determine con­
tent of individual questions; (4) determine the form of response to each
question; (5) determine the wording of each question; (6) determine the
sequence of questions; (7)determine the physical characteristics of the
questionnaire; (8) re-examine steps (1) to (7) and revise if necessary; (9)
pre-test questions and review if necessary.

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This procedure provides a systematic guide to evolving a questionnaire
through the many necessary development stages. It is felt that although
several of these steps are aimed at resolving informant response and
completion o f problems, which are more pertinent in the case of mail
surveys, the benefits of this step-by-step approach would also include
smoother interview delivery. In practice, following the nine steps often
precipitates iteration and looping among them (Churchill, 1991).

5.4.4.1 Information Sought

This first step is to determine the information sought, which in turn will
influence the variables specified in relation to the research questions and
hypotheses. The hypotheses will not only be a guide to what information
will be sought but also determine the type of question and form of re­
sponse used to collect it. The right people in the right unit will need to be
identified as well in order to collect the appropriate information.

5.4.4.2 Type of Questionnaire and Method of Administration

The quantitative approach arises from a positivist paradigm that is centred
on objective truth, scientific methods and systematic measurement of
phenomena. Its emphasis is on statistical relationships allowing gener­
alisations or pointing to specific linkages between elements of a problem.
Based on this justification, a structured questionnaire was chosen for this
research. Valid measures in previous research were adopted for this study.
As it was very difficult to have face-to-face interviews with all the man­
agement-level respondents, this research used a self-administered ques­
tionnaire approach (Saunders et al., 2003). The questionnaires were
posted or emailed to 820 respondents.

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The data used in the research was primary data obtained through a
three-stage questionnaire survey. The questionnaires were sent out as a
single mail shot to 820 firms based in Beijing. The mail shot was com­
plemented by a series of three letters. The purpose of which is described
below:

Letter 1 (appendix 1): pre notification (arrives 5 days before the ques­
tionnaire), to let prospective participants know in advance that a ques­
tionnaire would arrive shortly, to describe the purpose of the questionnaire,
and to invite them to participate. Letter 2 (appendix 2): notification ar­
rived along with the questionnaire to introduce the questionnaire and ex­
plain in more detail the purpose of the questionnaire and to invite them to
participate. Letter 3 (appendix 3) a follow-up letter contained a ques­
tionnaire (10 days after questionnaire) arrived, to provide the prospective
participant with a second opportunity to contribute before the survey was
closed. The survey started in the beginning of February 2008 and ended at
the end of July 2008. Finally, 211 respondents returned the questionnaire
and the response rate was 25.7% (211/820). After excluding the ques­
tionnaires from a organization having less than 200 people, the number of
the valid sample ultimately was 168.

5.4.4.3 Determine Content o f Individual Questions

Once the type o f questionnaire and methods of administration have been

decided, the next crucial stage is to consider what to include in the indi­
vidual questions. In order to meet the required validity and reliability
criteria, multiple indicators for each construct were employed to minimise
the error of measurement (Churchill and Lacobucci, 2002). Moreover, the
use of multiple indicators enables a richer description of the variables,

149
which is particularly valuable for SHRM research. The development of
the questions follows the conceptual model depicted in chapter 4 relating
to the constructs o f interest in this investigation. All the items were se­
lected from existing literature.

5.4.4.4 Determine the Form o f Response to Each Question

Once the content o f each individual question was determined, the next
decision is to decide on the particular form of response. Following the
predominant approach in the SHRM literature, most of the items in the
questionnaire utilized rating scales, which enable powerful parametric and
multivariate statistical analysis (Hair et al., 1998). The questions are
close-ended and in order to maintain uniformity, a 5-point Likert type
scale is applied to all items, whereby responses ordinarily ranged from
strongly agree to strongly disagree.

5.4.4.5 Determine Wording o f Each Question

The phrasing of each question is crucial as a poorly phrased question can

cause item non-responses or measurement error (Churchill, 1999). The
use of simple words, explicit assumptions and options and the avoidance
of ambiguous words, generalizations and estimates, and leading questions
may avoid these problems (Dillon et al., 1990; Churchill and Lacobucci,
2002). Similarly, Churchill (1991) noted the ‘vocabulary1 problem’ for
v.

most researchers as they are normally more highly educated than the
typical questionnaire respondents. Hence, it was decided that the ques­
tionnaire must be pre-tested to avoid ambiguous wording or any mis­
leading questions and where apposite, questions were amended and sim­
ple/unambiguous languages was used. In addition, extant empirical stud-

150
ies show that practitioners were different terminologies from academics.
This is considered a critical issue in a transitional economy like the PRC.

5.4.4.6 Determine the Sequence o f Questions

There are several rules of thumb that need to be followed regarding

question sequence. First of all, the first few questions need to be simple,
interesting, and non-threatening (Churchill, 1991). The first section in this
research is general information, for example, how many employees are in
your company? Where is your business located? How many years has
your company been in China? These opening questions appear simple and
not confidential which encourages the respondents to fill out the ques­
tionnaire and not confidential which encourages the respondents to fill out
the questionnaire in a relaxed mood. Additionally, Malhorta and Birks
(2000) suggested that all questions should be divided into various sections
and the questionnaire should move smoothly from one section to another.
The questionnaire used in this research was divided into 5 sections: named
A to E. Section A contains the questions concerning basic organizational
characteristics and contextual factors. Section B collects the data about
HRM policies and practices. Section C asks questions about Strategic
Role of HR, and Section D is concerned with the business strategies. The
last part, section E, investigates organizational performance in terms of
HR outcomes, organizational outcomes and financial accounting out­
comes.

Finally, to help respondents completing questions accurately, clear in­

structions were given at the beginning of each section and respondents
were thanked for their contribution to this project.

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5.4.4.7 Determine Physical Characteristics of the Questionnaire
The physical layout o f the questionnaire is important to attract the re­
spondent’s attention and helps to increase accuracy (Churchill, 1999). In
this project, respondents were targeted at senior manager level (vice
presidents, HR directors or deputy HR directors), hence the questionnaire
needed to be short as research shows that business professionals appear to
be more sensitive to the length o f the questionnaire than the general
population (Jobber and Saunders, 1993). In addition, managers may wish
to skip the whole questionnaire before deciding to fill it out. In this case,
the layout and quality of the questionnaire would be extremely important.
Thus, the different form types as well as bold and underlining facilities
were used. The layout was produced to be attractive, each page was
compact and well organised, and a cover letter (see appendix 2) was at­
tached to the front page to state the purpose of the research.

5.4.4.8 Re-examine and Revise if Necessary

Although a considerable effort was made in developing the questionnaire
thus far, the researcher should not expect that the first draft will result in a
usable questionnaire (Churchill, 1999). Thus, re-examination and revision
are considered vital. In this regard, each question was reviewed to ensure
that the question was not confusing or ambiguous, potentially offensive to
the respondents, bias inducing, or too easy to answer. In addition, every
effort was made to uncover faults within the formulation stages discussed
previously.

5.4.4.9 Pre-test
Questionnaire pre-testing is the last stage in questionnaire development.
The purpose o f the pre-test is to refine the questionnaire so that respon­
dents will have no problems in answering the questions and there will be

152
no problems in recording the data, also, to discover if the questions have
meaning for the respondent, to check respondent modification of a ques­
tion’s intent, to examine question continuity and flow, to experiment with
question sequencing patterns, to collect early warning data on item va­
lidity, and to fix the length and timing of the research instrument (Chur­
chill, 1999; Cooper and Emory, 1995).

Prior to the main survey, the researcher conducted a thorough investiga­

tion of the research instrument, which was pre-tested in three phases of
personal interviews. To assess the appropriateness of the instrument, the
resulting questionnaires were first pre-tested in form of in-depth interview
among three companies operating in the PRC. Using input from the
pre-test, the survey instrument was revised to improve the clarity and
relevance of the questionnaire, and to ensure that questions were inter­
preted as expected. To further test the reliability and validity of the
measures, the revised questionnaire was followed by a further two-phase
pre-test among 18 Chinese managers. The final version of the question­
naire reflected several minor modifications suggested by participants in
the pre-test. Thus, the detailed back-translation, series of rigorous
pre-tests, and in-depth discussion with managers during the pre-test, gave
confidence in the general appropriateness of the instrument and data col­
lection method. The three-phase pre-tests are detailed explicitly as fol­
lows:

5.4.4.9.1 P h ase 1:In-depth In terview

In the first stage, the researcher interviewed three managers in three

companies in the PRC. In addition to going through the instrument, this
author aimed for two key tasks, first, to build up connections with practi­

153
tioners in the PRC. It is well-known that ‘personal connec­
tion/relationship’ plays a vital part in Chinese society. Extant empirical
research has confirmed the importance of ‘Guan XC (personal relations
network) in accessing institutions in such complex environments (Child
and Yan, 1999). Secondly, the author aimed to gain more advice from
practitioners regarding the main survey.

In the first step, the researcher conducted three separate in-depth inter­
views. Two of the interviewees were the author’s former schoolmates,
who are now HR professionals in China. They were all very enthusiastic
and hopeful in terms of giving advice and introducing other informants in
the PRC. Each interview lasted 2-3 hours and suggestions and conclusions
are summarised as follows:

On one hand, an unmanaged mail survey is unlikely to achieve much in

the PRC since there are numerous questionnaires received per day in each
company. One way of increasing the response rate is to provide an ‘in­
centive’, for example, a voucher or a management book would be con­
sidered suitable, albeit this does not guarantee the quality of data. On the
other hand, a good way to secure access would be cooperating with a
university or government department, such as the Bureau of Statistics.
This will secure a high response rate as enterprises normally would expect
to maintain good relationships with these associations by responding to
sponsored questionnaires. Nevertheless, one concern for this particular
study is this project requires the informant at manager level; what nor­
mally happens in Chinese society is the questionnaire will be passed to the
manager’s assistant/secretary to fill in. This causes an obvious reliabil­
ity/validity concern for this study.

154
Based on their suggestions, the author of this thesis used the G uan X i
(personal relationships) with the Bureau of Statistics of the PRC to secure
the access to the managers in manufacturing and services companies in
China.

5.4.4.9.2 P h ase II a n d P hase III

The phase II was a pilot study to a sample of 10 HR managers. It revealed

that, on average, respondents spent about than 20 minutes to complete the
questionnaire. Furthermore, feedback was gathered from participants with
relation to the length, wording and instructions of the questionnaire. As a
result, some minor refinements were made to the wording of a few of
questions.

Based on the feedback from the first two phases, the questionnaires were
distributed to 13 respondents again, to ensure that respondents understood
the terminology used in questionnaire. On completion of these stages the
researcher felt confident of the validity and rigour of the research in­
strument.

Although researchers have pointed out that the SHRM field is in need of
longitudinal research, and data/information collected from multiple re­
spondents, this thesis is not able to address these issues due to the certain
constraints, including the limited time and access to multiple respondents
in this research.

5.5 Sampling Techniques

Sampling is intended to gain information about a population by a scien­
tific choice of representative cases. Therefore, accurate sampling methods
and a comprehensive sampling frame are the foundation of empirical
155
surveys. Sampling methods can be broadly divided into probability sam­
pling and non-probability sampling. Probability sampling includes simple
random sampling, systematic sampling, stratified sampling and cluster
sampling (Babbie, 2001). These methods are based on probability theory
and therefore each case with the characteristics the researcher is interested
in has the same chance of being selected. These methods are widely used
in large-scale surveys. Non-probability sampling includes four types: re­
liance on available subjects, purposive or judgemental sampling, snowball
sampling and quota sampling (Babbie, 2001). If it is impossible to obtain a
sampling list or the research has particular research intentions,
non-probability sampling would be used.

5.5.1 Sampling Frame

A sampling frame is a list or a ‘quasi-lisf of elements from which a
probability sample is selected (Babbie, 2001). The samples for this study
were principally companies, or MNC’s Chinese Branches, which were set
up and operating in the PRC.

As the research focuses on companies and their SHRM in the PRC, the
selected companies should have been set up and been operating in China.
However, this is not to say that multinational companies (MNCs) were
excluded, as long as the MNCs or MNCs operations were set up and have
been based in the PRC, they will be included. In the PRC, there are six
principal types of ownership including State Owned Enterprises (SOE),
Collectively Owned Enterprises (COE), Privately Owned Enterprises
(POE), Joint Ventures (JV) and Foreign Owned Enterprises (FOE)
(Cooke, 2005). In this research, the population included the companies in
all the six types o f ownership, based and operating in China. The number

156
of the cases was expected to be around 150-200. These companies were
drawn mainly from a frill list of firms operating in Beijing, the capital city
of the PRC. The list was received from the Bureau of Statistics of Beijing.
Previous research has examined the SHRM of firms in the South and the
East of PRC, like Zhejiang, Jiangsu and Shanghai, Guangdong, Pearl
River Delta, Hong Kong etc. (Fields et al., 2000; Ding and Akhtar, 2001;
Wang and Zang, 2005; Zhu et al., 2005; Akhtar et a l ., 2008; Ngo et al.,
2008; Wang and Wang, 2008; Zhu et al., 2008). Enterprises of Beijing
were only investigated as one of three sources of the sample in SHRM
research (Ngo et al., 2008).

5.5.2 Survey Sam ple

Based on the sampling frame explained above, 820 companies were in­
cluded in the population list. At the beginning of February 2008,
self-administrated questionnaires were used in the research to collect data.
The questions in the questionnaire were drawn from items used in the
literature to describe the constructs employed here in the theoretical
model. Among the returned questionnaires, 168 usable one were used.
Multiple regression analysis via SPSS was used to explore the relation­
ships between the constructs. As this is quantitative research and a large
scale of the survey was to be undertaken, the respondents in the study
were to remain anonymous. The data was coded and analysed with each
questionnaire identified by a code assigned according to the sequence of
response, to ensure the respondents could not be identified by the code.

5.6 Data Analysis: Statistical Technique Choice

In the thesis, quantitative analysis was the main research tool. The con­
sideration on the types and nature of the data collected and the hypotheses
157
was proposed in Chapter 4. Based on these considerations, a number of
multivariate statistical techniques were chosen. They were:

First, Exploratory Factor Analysis (EFA) was employed to determine the

relationship across items underlying factors and reduce the number of
variables. Second, hierarchical multiple regression was used to evaluate
which independent variable(s) determined the dependent variable with
certain influencing factors under control. All the analysis was to be carried
out with SPSS 10.0 for windows. The details about the usage of factor
analysis and hierarchical multiple regression will be presented in Chapter
7.

5.7 Validity and Reliability Assessment

According to Churchill (1999), no single item is likely to provide a perfect
representation of a concept, as no single word can be used to test for dif­
ferences in subjects’ spelling abilities and no one question can measure
concepts like a person’s intelligence, the constructs of interests in this
study are reported via ‘multi-item’ scales. In order to generate findings
from these measures, a central part in the development of any scale is
establishing its content validity, construct validity and reliability
(Boudreau et al. 2001).

5.7.1 C ontent V alidity

Content validity is typically established through the literature review and

expert judges (Cook and Campbell, 1979). It is the first step toward es­
tablishing the correspondence between theoretical constructs and items
measured. If a measuring scale does not possess content validity, it cannot
possess construct validity no matter what statistical analysis is conducted

158
(Graver and Mentzer, 1999). In this regard, the easy way to determine
content validity is through the literature review and expert judgment. The
items used in this thesis were adopted from existing literature and proved
by both academic and professional experts.

5.7.2 Construct Validity

Construct validity is assessed by whether the measure confirms or denies
the hypotheses predicted from the theory based on the constructs. It pri­
marily checks relationships involving the theoretical ideas underlying the
measure (Hair et al. 1998; Churchill and Lacobucci, 2002). Typically,
construct validity is comprised o f sub-dimensions which include con­
vergent and discriminant validity. Convergent validity is the extent to
which the latent variable correlates to items designed to measure the same
latent variable, while discrimiant validity is the extent to which the items
representing a latent variable discriminate that construct from other items
representing other variables (Churchill and Lacobucci, 2002). The Con­
struct validity was checked by the correlations between the variables of
different constructs in the conceptual model (see Table 1 4 ). There are three
main constructs in the conceptual model of this research, namely, HRM
policies, business strategies and organizational performance. It was found
that the correlations between variables in same constructs were at a higher
level than those between items of different constructs.

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Table 14: Correlations between Variables
1 2 3 4 5 6 7 8 9 10 11 ]2 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Age(log)

Size(log) .058

Culture .8 1 4 ** -.002

.2 8 7 ** .007 . 194*
Unionization

Sate Owned Enterprise .2 6 7 ** .014 .2 5 9 ** .4 1 8 **

-.147 -0 5 6 -.059 -.006 -.2 9 0 **

Joint Venture

-.081 -.092 -.110 -.4 4 0 ** -.4 4 8 ** -.283**

Privately Owned Enterprise

- .156* .016 -.111 - . 182* -.2 0 5 ** -.129 - . 199**

Foreign Invested Enterprise
-.2 4 9 ** -.044 .023 -.2 4 7 ** -.117 -.038 .107 .106
Starting

-.2 6 0 ** -.020 -.2 6 1 ** .072 .049 .122 -.088 -.026 -.2 0 5 **

Growing

. 197* .059 . 173* -.043 .100 -.038 -.057 -.076 -.063 -.2 0 5 **
Declining

Turning .2 4 0 ** -.132 .2 0 3 ** .149 .122 - . 153* -.072 .028 -.090 -.2 9 1 ** -.090

-.101 -.136 -.097 .060 -.063 -.038 .107 .015 -0 6 3 .103 -.063 -.010
Chemicals & Pharmaceuticals

-.055 .082 -.088 .038 -.069 .088 .089 -.051 .005 -.014 -.051 -.022 - . 161*
Electronics & Engineering

Finance, Banking & Insurance .057 .058 .065 .003 .131 -.108 -.028 .033 -.048 .078 -.048 .036 -.115 -.293**

Sales & Business Service .055 -.119 .113 -.137 -.091 -.005 -.043 .022 .063 .001 -.015 .101 -.092 -.236** - . 168*

Mixed .068 .011 .093 -.017 .041 .051 .024 -.056 .109 - . 169* .109 -.054 -.134 -.341** -.243** - .195*

Innovation - . 163* -.062 - . 160* -.024 -.094 .049 .065 .039 -.056 .125 - . 194* .040 .081 .018 .026 .037 -.2 1 8 **

Cost Reduction - . 176* .023 -.2 3 1 ** 022 -.094 .060 .033 -.070 -.121 . 172* - . 192* -.099 .015 .114 -.029 -.036 -.149 .2 7 7 **

Quality Enhancement - . 184* .079 - . 162* -.067 -.130 -.046 .054 .009 .004 .088 - . 159* -.040 .111 -.025 .079 -.026 - . 189* .342** .5 44**

HR Outcomes - . 191* -.030 -.2 1 4 ** -.094 -.083 -.015 . 159* -.133 .061 .020 - .178* .053 .117 -.009 .067 -.039 -.086 .2 09** .3 97** .486**

Organizational Outcomes - . 161* . 174* - . 160* -.049 -.086 -.006 .127 -.038 -.011 -.017 -.095 -.115 .041 -.032 .054 -.001 -.091 .292** .3 75** .64 9 ** .4 5 3 **

Financial Accounting Outcomes -.031 -.105 -.063 -.020 .056 -.014 .097 -.070 -.006 .123 -.114 -.151 .021 .013 .022 -.002 -.020 .379** .3 53** .356** .4 1 5 ** .387**

HR Planning -.068 .015 -.115 -.057 -.2 2 4 ** .037 .050 .089 -.073 -.054 -.145 -.023 .016 -.057 .069 .075 -.061 . 185* .2 37** .375** .3 9 2 ** .354** .238**

Compensation -.125 -.044 - . 175* -.142 -.2 1 1 ** -.047 . 169* .060 -.089 .099 -.213** -.123 .044 .001 .085 077 -.110 .229** .2 9 8 ** .386** .4 4 3 ** .235** .2 6 9 ** .426**

Training -.2 6 8 ** -.080 -.2 8 5 ** -.105 - . 153* .024 . 173* .009 -.081 .062 - . 158* -.115 .064 .027 .074 -.049 -.123 .213** .308** .380** .5 2 9 ** .262** .281** .4 7 8 ** .6 1 7 **

Management-Employee Relationship - . 194* .085 - . 187* -.045 - . 176* .043 . 186* -.043 -.078 .074 -.2 0 6 ** -.086 .111 .052 .009 -.088 -.078 .231** .341** .4 2 1 ** .5 0 2 ** .391** . 183* .356** .4 5 0 ** .6 0 9 **

160
5.7.3 Reliability Test
Reliability concerns the accuracy of the measuring instrument, while va­
lidity is associated with whether a particular construct is the underlying
cause of the covariation (DeVellis, 1991). Two different ways of testing
construct reliability are test-retest and internal consistency (Hair et al.,
1998). The former denotes the consistency in the responses of an infor­
mant at two points of time. The latter refers to consistency among the
variables within a construct scale. The latter has been proved as the more
popular one in correlational research to date, due to the fact that there are a
number of convenient diagnostic measures that can be used, such as
item-to total correlations and Cronbach’s alpha coefficients (Hair et al.,
1998). This indicator is likewise favoured in the present investigation. By
contrast, a test-retest procedure can be problematic insofar as it would
involve approaching informants a second time to persuade them to fill out
the same set o f questions, which is extremely difficult in practice. Apart
from the researcher’s time and cost issues, the managerial informants have
already contributed their valuable time to assist the research.

5.7.4 Common Method Bias Checking

This research acknowledges that it might be affected by common method
bias, as the same respondent provided data on both the independent
variables and dependent variables. However, the common method bias
can be limited in this study because in the questionnaire, the dependent
variables followed rather than preceded the independent variables.
Moreover, the questionnaire was quite long and it was rather exhaustive
for a single respondent to complete the questionnaire.

161
Furthermore, the application of Harman’s (1967) single-factor test to all
the relevant variables in the model, using the eigenvalue greater than one
criterion, revealed 17 factors, and just one, with the first factor explaining
22.110% of the variance in the data. Thus, it was believed that the com­
mon method bias in the data was relatively limited.

5.8 Summary
This chapter provided an explanation of the methodological approach
adopted in the present empirical investigation. Pertinent method aspects
covered included the research design, data sources and generation, ques­
tionnaire development, survey construction and data analysis. Significant
information was provided on each of these topics, though in the case of
data analysis there are additional details that it is proper to report in the
two analysis chapters following chapter 6, the descriptive analysis part,
and chapter 7, hypotheses testing results. The next chapter reports the
descriptive analysis of the data, which is the first stage of the data analysis.
In includes a demographic profile of the sample, and descriptive analysis
of the constructs consisting o f the conceptual model.

162
Chapter Six

Descriptive

Data Analysis
Chapter 6 Descriptive Data Analysis

6.1 Introduction
Descriptive analysis refers to the transformation of raw data into a form
that will make it easy to understand and interpret. It is generally the first
stage of the analysis of findings and involves calculations of frequency
distributions, measures of central tendency and dispersion and tabulations.
The purpose of the present chapter is to investigate the descriptive statis­
tics for the constructs appearing in the conceptual model, presented in
chapter 4, before which the demographic profile will be presented. This
chapter presents the descriptive statistical results only. The interpretation
of these results will be presented in chapter 8.

6.2 Demographic Profile of the Sample

The results of descriptive analysis of demographic profile of the re­
searched firms are presented in Table is:

6.2.1 Size o f C om panies

Firm size was measured by the number of full time employees. Table 15
above showed that 29.8% of the sample firms were with 200 to 500 em­
ployees, while those o f 501-2000 employees accounted for 16.2% of the
sample. Those had 2001-5000 employees made up 23.8% of the re­
searched firms. Finally, 20.2% of the researched firms had more than
5000 employees.

The age of the company was divided into four categories. The first cate­
gory contained 44.6% of the sample, and they had operated for less than

164
10 years. Firms having an age between 10-20 years accounted for 34.5%
of all the researched firms, of which 11.9% were 21-30 years old and 8.9%
were older than 30 years.

There are six types o f ownership in PRC: State Owned Enterprises (SOE),
Collectively Owned Enterprises (COE), Privately Owned Enterprises
(POE), Township and Village Enterprises (TVE), Joint Venture (JV) and
Foreign Invested Enterprises (FIE). The proportion of the companies of
different ownership varied from 4.8% (TVEs) to 31.5% (SOEs) and
30.4% (POEs). 9.5% of the sample firms were COEs, and 15.5% of the
sample firms were JVEs. FIEs accounts for 8.3% of the sample.

Of the researched firms, 58.3% of them were unionized.

Concerning the organizational life cycle stage of the firms, only 6% of the
companies in the sample were at the stage of start-up. 39.9% of them were
at the growth stage, while 36.9% of the companies were mature. 6.0% and
11.3% of the sample were declining and tuming-around respectively.

In respect to business sector, the sample was divided into the garment
sector (6.0%), chemical and pharmaceuticals (29.2%), electronics and
engineering (17.3%), finance, banking and insurance (11.3%), sales and
business service (22.6%) and others mixed (13.7%).

165
Table 15: Demographic Profile o f the Researched Firms (sample size: 168)
D em ographic
category Percentage (% )
C haracteristics
State owned enterprise 3 1 .5
- Collectively owned enterprise 9.5
O w nership Township and Village Enterprise 4 .8
Joint Venture 15.5
Privately Owned Enterprise 3 0 .4
Foreign Owned Enterprise 8.3
U nion Presence Unionized 58.3
Non-unionized 41.7
Starting-up 6 .0
Growing 3 9 .9
Organizational Life C ycle
Mature 3 6 .9
Declining 6 .0
Turning around 11.3
Garment 6 .0
Chemicals & Pharmaceuticals 2 9 .2
Business Sector Electronics & Engineering 17.3
Finance, Banking & Insurance 11.3
Sales & Business Service 2 2 .6
Mixed 13.7
Less than 10 years 4 4 .6
10-20 years 3 4 .5
O rganizational A ge
21-30 years 11.9
More than 30 years 8.9
200-500 2 9 .8
501-2000 2 6 .2
O rganizational Size
2001-5000 2 3 .8
More than 5000 2 0 .2

6.3 Descriptive Analysis of Constructs

6.3.1 Business Strategy

The respondents were asked to answer to what extent the company em­
phasizes each strategic orientation. Business strategy was measured on
three dimensions: innovation, cost-reduction and quality-enhancement.
Table 16 revealed that the mean scores of Innol, Inno2 and Cost3 were
comparatively low (less than 3). All the rest items were with mean scores
between 3 and 4. Items of quality enhancement strategy scored higher
values than others, which indicated that quality enhancement strategy was
dominant over the other two.

Table 16: Business Strategy

Constructs/Items Response Scale (%)
Mean SD
1 2 3 4 5
Innol Innovative investing in R &D 17.9 19 26.2 29.2 7.7 2.90 1.23
Innovative introducing new
Inno2 16.1 17.9 31.5 26.2 8.3 2.93 1.19
products and brands
Delivering new products and
Inno3 11.9 14.9 29.2 34.5 9.5 3.15 1.16
service
Seeking new business opportuni­
Inno4 7.7 12.5 30.4 32.1 17.3 3.39 1.14
ties
Reducing the costs o f labour to
Costl produce existing products or ser­ 7.7 21.4 33.9 29.8 7.1 3.07 1.05
vices.
Reducing the costs o f materials to
Cost2 produce existing products or ser­ 7.7 20.2 35.1 28 8.9 3.10 1.07
vices.
Cost3 Controlling inventory 9.5 22.6 35.1 26.2 6.5 ,2.98 1.07
Cost4 Improving operational efficiency 8.3 15.5 31.5 32.7 11.9 3.24 1.11
Quail Devoting time to quality control 5.4 14.9 35.1 34.5 10.1 3.29 1.02
Working with customers or sup­
Qual2 pliers to improve quality of 1.8 11.9 36.3 35.1 14.9 3.49 .95
product or service
Qual3 Quality circles 6 12.5 39.3 29.8 12.5 3.30 1.04
The effectiveness o f company’s
Qual4 2.4 11.3 32.7 35.1 18.5 3.56 1.00
quality management program
The improving the quality o f ex­ 33.3 35.7 3.59 .99
Qual5 3 8.9 19
isting products or services.

6.3.2 HRM Policies

HRM policies were measured on six dimensions, HR planning, HR
staffing, HR appraisal, HR compensation, HR training and development,
and management-employee relationship. In Table 17, the mean scores of
HR planning (except Plan5) were higher than 3. Also, three items in HR
staffing (Staf3-5), one item in compensation (Comp6), one item in
Training (Trai9) and 3 items in management-employee relationships

167
(MER1,2 and 5) had mean scores higher than 3. 11 items Plan5, Appr2,
Appr3, Comp3, Comp4, Comp5, Comp7, Comp8, Trai4, Trai5 and Trai7
had mean scores lower than 3. And all the rest had mean scores around 3
(non-significantly different from mid-point value 3).

168
Table 17: Adoption o f HRM Policies
Constructs/ Items Response Scale (% Mean SD
T-test
Planl Short term H R planning 3.605* Long term H R planning 8.9 17.3 27.4 22.6 23.8 3.35 1.26
Plan2 Informal H R planning .567 Formal HR planning 14.9 23.2 24.4 16.1 21.4 3.06 1.36
Plan3 Implicit jo b analysis 5.09* Explicit jo b analysis 14.3 29.8 28.6 21.4 3.45 1.15
6.033* Clearly defined jo b description 15.5 32.1 26.2 23.2 3.51 1.10
-1.951 High em ployee involvem ent o f HR planning 20.8 22 25 20.2 11.9 2.80 1.31
Plan6 The job is simple 7.112* The jo b is com plex 10.1 36.3 28 22.6 3.57 1.04
Stafl Internal recruitm ent sources -.415 External recruitm ent sources 19 15.5 29.8 22 13.7 2.96 1.30
Staf2 Lim ited selection procedure -.816 Extensive selection procedure 15.5 19.6 35.1 16.7 13.1 2.92 1.23
Staf3 Implicit recruitm ent criteria 5.753* Explicit recruitm ent criteria 8.3 13.1 21.4 28.6 28.6 3.56 1.26
Staf4 Fusion w ith firm ’s culture 3.578* Capability-and skill-orientation 7.7 13.7 33.3 30.4 14.9 3.31 1.12
Staf5 Closed procedure 3.039* O pen procedure 10.1 16.7 29.2 21.4 22.6 3.30 1.27
A pprl Perform ance O riented -.469 Behaviour Oriented 20.2 15.5 25.6 26.2 12.5 2.95 1.32
The main objective is to identify em ployees’
-1.642 19 22.6 23.2 25.6 9.5 2.84 1.27
weakness and improve perform ance

-2.161' High employee participation 16.7 20.8 32.7 24.4 5.4 2.81 1.14
Appr4 Individual criteria .599 G roup criteria 10.7 19 37.5 19.6 13.1 3.05 1.16
Conduct appraisal activities frequently, such Conduct appraisal activities occasionally,
Appr5 .935 11.3 16.7 36.3 23.8 11.9 3.08 1.15
________as weekly or m onthly based________ such as quarterly or yearly based
C om pl Low base salaries -.257 High base salaries 7.1 16.1 51.8 21.4 3.6 2.98 .90
Comp2 1.821 M any perks 8.9 14.9 36.3 32.1 7.7 3.15 1.06
Comp3 -2.881' Flexible package 21.4 20.2 31 19 8.3 2.73 1.23
Comp4 -3.254* M any incentive 22.6 20.8 28.6 20.8 7.1 2.69 1.23
Comp5 -2.192* Long term incentives 17.3 20.8 37.5 13.7 10.7 2.80 1.20
Comp6 employment security 5.728* High em ploym ent security 10.7 29.8 36.9 16.7 3.48 1.08
Comp7 -9.741’ High participation 40.5 23.8 22.6 8.9 4.2 2.13 1.16
Comp8 -4.929* Skills in w ork 29.8 17.9 28.6 17.9 2.52 1.25
Comp9 Seniority oriented 1.048 M erit oriented 8.9 16.7 44 17.3 13.1 3.09 1.10

169
Table 17 continued
C onstructs/ Item s Response Scale (% ) M ean SD
T -test 1 2 3 4 5
Employees do not need to go take training Employees need to go take training pro­
T rail 1.506 11.3 19.6 28 25.6 15.5 3.14 1.23
programmes every certain length o f time grammes every certain length o f time
Trai2 N arrow and specific application -1.110 Broad and general application 14.9 21.4 31.5 23.2 8.9 2.90 1.18
Trai3 Lim ited training -1.928 Extensive training 21.4 19 26.2 23.8 9.5 2.81 1.28
Training credits are tightly linked to pro­
Trai4 -3.795** 23.8 16.7 37.5 14.9 7.1 2.65 1.20
motion
Trai5 Product •ientated -4.309** Quality o f w ork life oriented 23.8 20.8 33.9 14.3 7.1 2.60 1.20
Trai6 External consultants .543 Internal experts 10.7 19 35.7 23.8 10.7 3.05 1.14
Trai7 Off-rlosftratning -3.805** O n-post training 20.2 22 32.1 22 3.6 2.67 1.14
Trai8 Hierarchy 1.379 Egalitarian 11.3 15.5 36.3 23.2 13.7 3.13 1.17
Trai9 Seniority oriented 1.673 M erit oriented 7.7 14.9 45.2 20.2 11.9 3.14 1.06
M ER 1 Some com munication 3.051** Extensive com munication 9.5 14.3 32.1 26.8 17.3 3.28 1.19
M ER2 Conflicted 6.769** Cooperative 1.2 16.7 30.4 29.8 22 3.55 1.05
M anagem ent and employee have different M anagem ent and employee have same fa­
M ER 3 1.164 13.1 18.5 28.6 23.8 16.1 3.12 1.26
facilities cilities
M ER 4 N o participative m anagem ent in com pany -1.286 Participative m anagem ent 14.3 20.8 33.9 23.8 7.1 2.89 1.14
M ER 5 N o self-managed teams 2.671** W idely use self-m anaged teams 7.7 17.3 32.7 28.6 13.7 3.23 1.13
Employee-managem ent meeting is held only Employee-managem ent meetings is held
M ER 6 1.081 17.3 14.3 28.6 19.6 20.2 3.11 1.36
in need regularly
Regularly providing operational information
MER7 M ost operational information is confidential -1.329 14.9 23.8 32.7 16.1 12.5 2.88 1.22
to employees
(If a mean values is significantly smaller than 3, it is highlighted with flfeer! coknj& while a mean value significantly bigger than 3 is highlighted with
colour. * p< or= 0.05, ** p< or= 0.01)
6.3.3 Organizational Performance
Organizational performance was measured on three dimensions, namely,
HR outcomes, organizational outcomes and financial accounting out­
comes. The mean scores of HR outcomes (except HR04) were generally
higher than other dimensions (see Table 18). All the items of organizational
performance were higher than 3. Standard deviations varied from .86 to
1.15.

Table 18: Organizational Performance

Constructs/Items Res ponse Scale (%)
Mean SD
1 2 3 4 5
HROl Quality o f product 2.4 7.1 25.6 42.9 22 3.75 .96
HR02 Public image and good will 1.2 6 25.6 46.4 20.8 3.80 .88
Satisfaction o f customers or cli­
HR03 1.2 5.4 28.6 46.4 18.5 3.76 .86
ents
HR04 Staff turnover rate 7.7 21.4 33.9 22 14.9 ,3.15 1.15
HR05 Absenteeism (R) 1.2 7.1 19.6 44 28 3.91 .93
001 Staff morale 6 33.9 45.8 14.3 6 3.68 .79
002 Employee commitment 3.6 14.3 32.7 35.7 13.7 3.42 1.01
003 Job satisfaction 4.2 14.3 37.5 33.3 10.7 3.32 .99
The ability o f staff to move be­
004 8.9 13.7 42.3 27.4 7.7 3.11 1,03
tween jobs as the work demands
FA01 Growth rate o f revenues 6.5 8.9 40.5 32.7 11.3 3.33 1.01
FA02 Growth rate o f market share 8.3 11.9 35.1 34.5 10.1 3.26 1.07

FA03 Long-run level profitability 6.5 11.9 41.7 28 11.9 3.27 1.04

6.3.4 Strategic Roles of HR Function

Strategic role of HR function was measured on two dimensions: strategic
role of HR function in strategy formulation (SF) and implementation (SI).
Two items SI5 and SI6 had mean scores lower than 3. The rest items’
mean scores were non-significantly different from 3. The mean scores
ranged from 2.79 to 3.16. The standard deviations fluctuated between 0.97
and 1.14 (see Table 19).
/

171
Table 19: Strategic Roles o f HR
O ne R esponse Scale (% )
sam ple
S trateg ic Roles o f H R F u nction M ean SD
t-test 1 2 3 4 5
w ith 3
SF1 The extent that the human resources departm ent is consulted by top m anagem ent 1.005 10.1 14.9 39.9 26.8 8.3 3.08 1.07
SF 2 The extent that HR is considered part o f top m anagem ent 1.267 7.1 16.7 40.5 31.0 4.8 3.10 .97
SF 3 The extent that the human resources departm ent is consulted by line managers .292 8.3 22 35.7 26.8 7.1 3.02 1.06
SF 4 The extent that HR frequently helps managers and supervisors .940 9.5 16.7 38.1 28.0 7.7 3.08 1.07
SF 5 The extent that the com pany’s strategic plan includes HR issues explicitly -.308 9.5 17.9 42.9 25.0 4.8 2.98 1.00
SF 6 How effective is it that the programmes held by HR can build employees capacity for changes -.695 10.1 17.9 43.5 24.4 4.2 2.95 1.00
H ow effective is it that H R explain the requirem ent o f the changes and encourage em ployee the
SF 7 -.071 11.3 18.5 36.9 26.2 7.1 2.99 1.09
support
SF 8 The extent that the HR strategy is consistent with com panies’ competitive strategy 1.829 9.5 16.7 34.5 26.8 12.5 3.16 1.14
SI1 The extent that a formal docum ent on H R planning is available to strategic planners 1.121 9.5 17.9 35.7 27.4 9.5 3.10 1.10
SI2 The extent that HR can hold programmes to eliminate the resistances to changes .147 8.3 20.2 42.3 20.2 8.9 3.01 1.05
SI3 The extent that HR can identity the resistance to changes -.079 8.3 18.5 42.9 26.2 4.2 2.99 .98
How effective is it that HR evaluate the current people and provide suggestions on change if the 2.88 .984
SI4 -1.569 7.7 25.0 45.2 15.5 6.5
current people is inappropriate
-2.871* 2.79 .97
SI5 or* “ izationai s to ie s y and provide su8sestions ° n * 9.5 27.4 41.7 17.9 3.6

How effective is it that HR evaluate the current organizational structure and provide suggestions 2.82 .977
SI6 -2.449* 9.5 26.2 41.1 19.6 3.6
on change if the current structure is inappropriate
How effective is it that HR evaluate the current rewards system and provide suggestions on change 2.92 1.04
SI7 -.961 9.5 23.8 37.5 23.2 6.0
if the current rewards system is inappropriate
How effective is it that H R Evaluate the current managerial and producing processes and provide 5.4 2.85 1.02
SI8 -1.965 10.7 23.2 42.3 18.5
suggestions on change if the current processes is inappropriate
(If a m ean values is significantly sm aller than 3, it is highlighted with Green coloui. w hile a m ean value significantly bigger than 3 is highlighted
w ith dark yellow colour. *, p< or = 0.05, ** p< or= 0.01,)

172
6.4 Summary:
This chapter has demonstrated the demographic profile of the sample and
highlighted the descriptive findings for the constructs in the conceptual
model. The descriptive analysis implied that the responses for every
construct varied to a certain degree. The next chapter presents the findings
from the multivariate analysis through using SPSS.

173
 Chapter Seven

Testing Hypotheses of

the Conceptual Model

174
Chapter 7 Testing Hypotheses of the Conceptual Model
7.1 Introduction
This chapter will report the results of data analysis by a series of statistical
methods via SPSS software package. It commences by presenting the data
preparation and screening procedures which entail the treatment of
missing data, detection of outliers and test of normality, and non-response
bias test. The next focus is the test of factorial validity of different con­
structs of the conceptual model. Finally, it conducts hierarchical regres­
sion to test the hypotheses in the conceptual model. This chapter presents
the results of statistical tests only. The interpretation and discussions of
these results will be presented in chapter 8.

7.2 Data Preparation and Screening

Multivariate analysis techniques have a strong analytical power to test
hypotheses in the research design, albeit they are not without limitations.
Data preparation and screening is the initial step in the data analysis
process. It is a time-consuming, but necessary, step that is frequently
overlooked by the researcher (Hair et al., 1998). Data preparation and
screening can avoid leading the model estimation and fitting programmes
to a failing solution (Kline, 2005). Regression requires assumptions of
distributional characteristics of the data set for an accurate analysis (Ta-
bachinick and Fidell, 2001). Thus, this stage is a crucial consideration for
multivariate analysis. The following sections contain missing data, out­
liers, normality and multicollinearity issues.

175
7.2.1 Missing Data
Missing data are very common in multivariate analysis (Hair et al., 1998)
and is one o f the biggest problems in data collection. The researcher can
scarcely avoid some form o f missing data problem. In this regard, the
challenge o f the researcher is to address issues raised by missing data that
affect the generalisability of the results (Tabachnick and Fidell, 2001).

Two main concerns are, first, to determine reasons underlying the missing
data and, second, the extent of missing data (Hair et al., 1998). Taba-
chinick and Fidell (2001) suggest the pattern of missing data is more
important than the amount missing. If missing values are scattered ran­
domly through a data matrix, they rarely pose severe problems. However,
non-randomly missing values are serious no matter how few of them there
are because they impact the generalisability of results (Tabachinick and
Fidell, 2001). In addition, it is debatable how many missing observations
are tolerated. Cohen and Cohen (1983) suggested that 5% or even 10%
missing data on a particular variable is not large. Generally, it is com­
monly accepted that if the missing observation is relatively small within a
large database, the problem could be considered as less serious and any
treatment should yield similar results (Kline, 2005). The number of the
missing values in this research was relative small and with no systemic
pattern.

There are three standard approaches to treat missing data, namely,

pair-wise deletion, list-wise deletion and imputation (Hair et al., 1988).
Pair-wise deletion excludes the cases that are missing on the variable
involved in the specific analysis, resulting in inconsistent sample size
from analysis to analysis which may result in a covariance matrix that is
not positively definite. List-wise deletion is conducted only on complete

176
observations, which reduces the sample size and as a consequence de­
crease the statistical power (Arbuckle, 2003). The imputation process
occurs not by replacing the missing data on the remaining cases, but es­
timating the missing values based on the valid values o f other observa­
tions in the dataset wither by mean imputation or by regression-based
substitution (Hair et al., 1998). This research will use the ‘Exclude cases
pairwise’ option to exclude the case only if they have missing values re­
quired for the specific analysis, to keep the size of sample.

7.2.2 Outliers
Outliers are cases with extreme values on one variable or a combination of
variables that unduly influence statistics (Tabachnick and Fidell, 2001).
They are found in both univariate and multivariate situations and they lead
to Type 1 and Type 2 errors. A univariate outlier is a case with an extreme
value on one variable, whilst a multivariate outlier is an odd combination
of scores on two or more variables. Outliers may significantly affect the
results o f regression and, thus, it is important to identify those extreme
values, to check for plausibility and to choose necessary solutions, for
example, deletion, redefining the population of study, or re-specifying the
model (West et al., 1995).

There is no absolute characterisation o f an extreme point for an univariate

outlier. A widely accepted rule of thumb is that a value more than three
standard deviations away from the mean is considered as outlier (Kline,
2005). The multivariate outlier can be diagnosed with the ‘Mahalanobis
D2 Measure’, which is a measure to assess the position of each observation
comparing with the centre o f all observations on a set of variable (Byrne,
2001). A large Mahalanobis distance value represents the case as having

177
extreme values on one or more variables. It is recommended that a very
conservative statistical test o f significance at Q.001 is the threshold value
(Tabachnich and Fidell, 2001).

In order to reduce the influence o f the outliers, the research transformed

these two variables (organizational age and organizational size) by con­
ducting a log transformation. But after this treatment, all the cases ap­
peared outliers before the transformation still remained outliers. Although
the outlier cases reflects the reality o f conditions o f the surveyed organi­
zations, to avoid the influence of outliers, which would biased the repre­
sentativeness o f statistical model, this research replaced the values of the
outlier with ‘the mean plus two standard deviations’ (Field, 2009, p i 53 ).

7.2.3 Non-responses Bias Test

In order to check and avoid potential non-response bias, Armstrong and
Overton (1997) and Lambert and Harrington (1990) recommended com­
paring the last quartile respondents with the first quartile respondents. A
series of t-test were conducted for all the items in questionnaire measured
on the Likert-scale. The results in Table 20 showed that most assessments
yielded no significant differences, which indicate than the 168 responses
can be used to avoid non-response sample.

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Table 20: Results o f Response and Non-response Bias Test
Mann-Whiney U Wilcoxon W Z Asymp.sig (2-tailed)
Planl 856 1891 -1.301 0.193
Plan2 908 1943 -0.867 0.386
Plan3 865 1900 -1.236 0.216
Plan4 931 1966 -0.687 0.492
Plan5 765.5 1800.5 -2.045 0.041
Plan6 995 2030 -0.149 0.881
Stafl 696 1731 -2.646 0.008
Staf2 548.5 1583.5 -3.883 0
Staf3 658.5 1693.5 -2.958 0.003
Staf4 769 1804 -2.089 0.037
StafS 744 1779 -2.239 0.025
Apprl 523.5 1558.5 -4.071 0
Appr2 603 1638 -3.407 0.001
Appr3 997.5 2032.5 -0.126 0.9
Appr4 749 1784 -2.207 0.027
Appr5 613.5 1648.5 -3.351 0.001
Compl 763.5 1798.5 -2.234 0.025
Comp2 952 1987 -0.518 0.605
Comp3 625.5 1660.5 -3.224 0.001
Comp4 658.5 1693.5 -2.949 0.003
Comp5 673 1708 -2.878 0.004
Comp6 854.5 1889.5 -1.34 0.18
Comp7 573.5 1608.5 -3.692 0
Comp8 611.5 1646.5 -3.339 0.001
Comp9 705.5 1740.5 -2.664 0.008
Trail 605.5 1640.5 -3.401 0.001
Trai2 590 1625 -3.545 0
Trai3 608.5 1643.5 -3.353 0.001
Trai4 731.5 1766.5 -2.363 0.018
Trai5 562 1597 -3.813 0
Trai6 646 1681 -3.092 0.002
Trai7 686 1721 -2.725 0.006
Trai8 552.5 1587.5 -3.858 0
Trai9 699 1734 -2.733 0.006
MER1 724 1759 -2.411 0.016
MER2 582.5 1617.5 -3.618 0
MER3 585 1620 -3.539 0
MER4 718.5 1753.5 -2.463 0.014
MER5 605.5 1640.5 -3.417 0.001
MER6 749 1784 -2.18 0.029
MER7 601.5 1636.5 -3.462 0.001
SPF1 838 1873 -1.489 0.1364
SPF2 933.5 1968.5 -0.667 0.5046

179
Table 20 continued
Mann-Whiney U Wilcoxon W Z Asymp.sig (2-tailed)
SPF3 833 1868 -1.528 0.1266
SPF 4 922 1957 -0.765 0.4443
SPF 5 749.5 1784.5 -2.237 0.0253
SPF 6 912.5 1947.5 -0.859 0.3906
SPF 7 803 1838 -1.78 0.075
SPF 8 924 1959 -0.744 0.4572
SPI1 903.5 1938.5 -0.921 0.3568
SPI2 847 1882 -1.439 0.1503
SPI3 935.5 1970.5 -0.663 0.5075
SPI4 795.5 1830.5 -1.886 0.0592
SPI5 819 1854 -1.666 0.0957
SPI6 630.5 1665.5 -3.231 0.0012
SPI7 822.5 1857.5 -1.609 0.1076
SPI8 837.5 1872.5 -1.509 0.1313
Innol 904.5 1939.5 -0.901 0.3675
Inno2 921 1956 -0.765 0.444
Inno3 953 1988 -0.498 0.6188
Inno4 1007 2042 -0.046 0.9631
Costl 881 1916 -1.112 0.2661
Cost2 804.5 1839.5 -1.749 0.0803
Cost3 871.5 1906.5 -1.188 0.235
Cost4 925 1960 -0.755 0.45
Quail 961.5 1996.5 -0.437 0.6622
Qual2 911.5 1946.5 -0.858 0.3908
Qual3 978.5 2013.5 -0.286 0.7747
Qual4 927.5 1962.5 -0.716 0.4739
HROl 704.5 1739.5 -2.65 0.0081
HR02 841 1876 -1.472 0.1411
HR03 824.5 1859.5 -1.624 0.1045
HR04 965.5 2000.5 -0.396 0.6918
HR05 839.5 1874.5 -1.48 0.1388
OOl 782 1817 -1.973 0.0485
002 629 1664 -3.222 0.0013
003 543 1578 -3.959 7.54E-05
004 695.5 1730.5 -2.732 0.0063
FAOl 943 1978 -0.598 0.55
FA 02 983 2018 -0.253 0.8003
FA03 782.5 1817.5 -1.99 0.0465
Organization Age 508 1543 -4.079 0
Culture 1 970 2005 -0.373 0.709
Culture 2 806.5 1841.5 -1.764 0.078
Culture 3 782.5 1817.5 -1.935 0.053
Culture 4 925 1960 -0.731 0.465
Culture 5 951 1986 -0.533 0.594

180
7.2.4 Normality, Linearity, Homoscedasticity and Multicollinearity

7.2.4.1 Normality
The most fundamental assumption in multivariate analysis is normality
which refers to the shape o f the data distribution and its correspondence to
the normal distribution (Hair et al., 1998). Multivariate normality means
that individual variables are normal in a univariate sense and that their
combinations are also normal. In other words, if a variable is multivari-
ately normal, it is also univariately normal. However, multivariate nor­
mality is more difficult to test and large sample sizes tends to diminish the
detrimental effect o f normality (Hair et al., 1998)

The simplest diagnostic test for normality is a visual check of the histo­
gram. A more reliable approach is the normal probability plot, which
compares the cumulative distribution o f actual data values with the cu­
mulative distribution o f a normal distribution. In addition, normality can
be identified by skewness, which portrays the symmetry of distributions
and kurtosis, which refers to ‘peakedness’ or ‘flatness’ o f distributions
compared with the normal distribution. Skewness values falling outsides
the range o f -1 to +1 indicate substantially skewed distribution (Hair et al,
1998). This research uses the skewness and kurtosis methods to check the
normality o f data values distribution. It was found that no skewness value
fell out o f the range from -1 to +1.

7.2.4.2 Linearity, Homoscedasticity and Multicollinearity

An implicit assumption o f all multivariate techniques based on correla­
tional measures o f association is linearity (Hair et al., 1998). Nonlinear
effects will not be represented in the correlation value since correlations
represent only the linear association between variables. Another concern

181
in multivariate techniques is homoscedasicity, which refers to the as­
sumption that dependent variables exhibit equal levels of variance of the
dependent variable being explained in the dependence relationship should
not be concentrated in a limited range of the independent values (Hair et
al., 1998). Both linearity and homoscedasticity all refer to the distribution
of scores and the nature o f the underlying relationship between the vari­
ables. These assumptions can be checked from the residual scatterplots
which are generated from the multiple regression procedure. In order to
secure the underlying assumption, this research checked these residual
scatterplots, due to the limited space, these results are not presented.

The other issue that must be addressed prior to conducting the regression
analysis is multicollinearity which exists when the independent variables
are highly correlated (Pallant, 2005). The Tolerance values were checked
before reporting the results of multiple regressions and they were above
the ‘rule of thumb’ level of .40 (Allison, 1999), thus suggesting that the
level of association between the predictor variables was not problematic.

7.3 Item and Scale Purification

This stage includes item analysis and scale purification. Item analysis was
computed by item-total correlations (each item with the sum of the re­
maining items), inter-item correlations (each item with every item) and
exploratory factor analysis. The rule of thumb for retaining items within
the scale is to delete those negatively correlated items or those items
which are not statistically significant (at p>0.05) item-whole correlations
(Spector, 1992).

182
7.3.1 Item Analysis
First, all constructs for this study were subjected to item analysis. Each
construct was examined separately through correlation analysis. The
Pearson product-moment correlation coefficient was conducted as it is
designed for interval level (continuous) variables (Pallant, 2005). The
results show all items under assessment correlate strongly with each other.

7.3.2 Exploratory Factor Analysis

Exploratory factor analysis (EFA) is a preliminary analysis when there is
little sufficient theory available to establish the underlying dimensions of
a specific construct and to reduce a large amount of items pooled to a
manageable set (Gerbing and Anderson, 1988). This technique analyses
data on a relatively large set of variables and identifies a smaller set of
factors. There are several techniques for accomplishing this analysis
procedure, and principal component analysis is the most widely accepted
extraction technique (Luck and Rubin, 1987).

This study applied this multivariate statistical technique to determine the

most suitable items for each construct. Orthogonal rotation (varimax) was
conducted as it helps to facilitate the accurate interpretation of the un­
derlying structure o f the data (Hair et al., 1998). This research followed
the ‘eigenvalue-greater-than-one’ rule for deciding how many factors to
retain for each factor solution (Churchill, 1991). Regarding the cut-off for
the minimum level o f item loading and maximum level of items
cross-loading, Tabachnich and Fidell (2001) argue that it is a matter of
researcher preference. Accordingly, this study retained items that have
loadings higher than 4.0 (Gerbing and Anderson, 1998).

183
7.3.2.1 Exploratory Factor Analysis Results: HRM Policy Configu­
ration

Table 21: Exploratory Factor Analysis of HRM Polices

Factor Factor Factor Factor
1 2 3 4
H R Planning
Formal HR planning is used in your company -.116 .111 -.015 .746
Explicit job analysis is used in your company .378 .066 .239 .763
Clearly defined job description is used in your com ­ .386 .112 .152 .682
pany
C om pensation
Flexible package is used in your company .105 -.011 .881 -.106
Many incentives are offered in your company .358 .350 .584 .274
The design o f compensation package is merit ori­ .197 .201 .655 .343
ented in your company
T raining
Broad and general training is used in your company .755 .227 .345 .183
Extensive training is used in your company .813 .141 .198 .147
Internal experts are used to deliver the training .770 .374 .016 .127
On-the-post training is preferred in your company .773 .145 .152 .024
Egalitarian-oriented criteria are used in offering .554 .284 .431 .216
training opportunities in your com pany
Merit oriented criteria are used in offering training .415 .292 .432 .248
opportunities in your com pany
M anagem ent-E m ployee R elation ship
Extensive communication is used in your company .253 .850 .173 .031
Cooperative m anagem ent-em ployee relationship .140 .876 .122 .093
exists in your company
Operational information is provided to em ployees .377 .619 .078 .252
regularly
Percentage o f v arian ce accou n ted for 24.059 16.430 14.886 13.738
C ronbach’s A lpha .884 .805 .677 .717
Total V ariance E xplained: 6 9.113
K aiser-M eyer-O lkin M ea su re o f Sam pling A dequacy: .884
Bartlett’s T est o f Sphericity: A pp rox. C hi-square:1324.849
D f:105
Sig:.000

Items of the HRM Policy construct were subjected to exploratory factor

analysis using SPSS. The initial un-rotated factors matrix was computed
to help obtain a preliminary indication of the number of factors to extract
(Hair et al., 1998).

Initially the suitability o f the data from the items scale was assessed by
examining the correlation matrix. This showed that many correlations

184
were above the value 0.3. Items with communality values less than 0.6
were excluded. The Kaiser-Meyer-Oklin value was 0.901, exceeding the
recommended value o f 0.6 and the Barlett’s Test of Sphericity reached
statistical significance (p=0.00), thereby supporting the factorability of
the correlation matrix (see Table 21).

Exploratory factor analysis results showed the presence of 4 components

with eigenvalues exceeding 1, explaining 69.113 percent of the total
variance. The first factor included six items concerning training policies.
It explained 24.059% of the total variance, and the Cronhach’s Alpha
was .884. This HRM policy configuration was named training. The sec­
ond factor contained three items about the cooperative relationship and
communication between management and employee. It explained
16.430% o f the total variance and had a Cronbach’s Alpha 0.805. This
HRM policy configuration was named management-employee relation­
ship. The third factor involved three items concerned with incentives and
flexible pay. It explained 14.886% o f the total variance and had a Cron­
bach’s A lpha .677. This HRM policy configuration was named compen­
sation. The fourth factor embraced three items of formal HR planning, job
analysis and description. It explained 13.738% of the total variance and
had a Cronbach’s Alpha .717. This HRM policy configuration was named
HR planning.

This research conducted the exploratory factor analysis to examine the

inter-consistency between HRM policies. It is also sensible to review what
type HRM system used to be proposed and examined by previous research.
Arthur (1994) used a sample of steel minimills operating under two dif­
ferent H R systems (control vs. commitment), and it was found that
commitment HR systems in contrast to control systems, resulted in higher

185
productivity, lower scrap rates, and reduced turnover. Control HR systems
are aimed to reduce direct labour costs, or improve efficiency, by en­
forcing employee compliance with specified rules and procedures and
basing employee rewards on some measurable output criteria (Arthur,
1994). High-commitment HR systems creates conditions that encourage
employees to identify with the goals o f the organization and to exert effort
to achieve them (Whitener, 2001). High involvement HR systems focus
on the use o f certain HR practices that directly influence the nature and
scope o f the jobs employees perform, for example, MacDuffie (1995)
focused on the use o f formal work teams, employee involvement groups,
product-related suggestions made and implemented by employees, the use
of job rotation within and across teams and carrying out quality teasks.
Iverson (2005) concentrated on empowering employees through increased
information flows and devolution o f decision of decisions-making power,
leading to greater productivity. High performance work systems, as noted
by Huselid (1995, p635) that ‘high performance work practices can im­
prove the knowledge, skills and abilities o f a firm’s current and potential
employees, increase their motivation, reduce shirking, and enhance re­
tention o f quality employees while encouraging non-performers to leave
the firm’. H R systems for occupational safety, building on the logic of
Pfeffer’s (1998) work, Zacharatos et al. (2005) proposed and designed a
high-performance work system for occupational safety, and they found
that safety-oriented HRPWS enhanced employee trust in management,
and enforced a positive safety climate, which in turn improved employ­
ees’ safety orientation and lowered injury incidences. When choosing to
use certain types o f HR systems, the goals of organizational and HRM
should be considered as determinants (Lepak et al., 2006).

186
7.3.2.2 Exploratory Factor Analysis of Strategic Role of HR Function
Table 22: Exploratory Factor Analysis o f the Strategic Role o f HR Function
Factor Factor
1 2
Strategic R ole o f H R F u n ction in Strategy Form ulation
The extent that the human resources department is consulted by top management .791
The extent that HR is considered part o f top management .746
The extent that the human resources department is consulted by line managers .843
The extent that HR frequently helps managers and supervisors .654
The extent that the com pany’s strategic plan includes HR issues explicitly .644
Strategic R ole o f H R F unction in Strategy Im plem entation
How effective is it that the programmes held by HR can build employees ca­
.685
pacity for changes
H ow effective is it that H R explain the requirement o f the changes and en­
.690
courage em ployee the support
H ow effective is it that H R evaluate the current organizational strategy and
.774
provide suggestions on change if the current strategy is inappropriate
How effective is it that H R evaluate the current organizational structure and
.817
provide suggestions on change i f the current structure is inappropriate
How effective is it that H R evaluate the current rewards system and provide
.841
suggestions on change i f the current rewards system is inappropriate
How effective is it that H R Evaluate the current managerial and producing
processes and provide suggestions on change i f the current processes is inap­ .773
propriate
Percentage o f varian ce accounted for 37.391 30.882
C ronbach’s A lpha .909 .869
T otal V ariance E xplained : 68.273
K aiser-M eyer-O Ikin M easu re o f Sam pling A dequacy: .931
B artlett’s T est o f Sp hericity: A pprox. C hi-square: 1145.089
Df:55
Sig:.000

Items o f the strategic role o f HR function construct were subjected to EFA

using SPSS. The initial un-rotated factors matrix was computed to help
obtain a preliminary indication o f the number o f factors to extract (Hair et
al., 1998).

Initially the suitability o f the data from the items scale was assessed by
examining the correlation matrix. This showed that many correlations
were above the value 0.3. Items with communality values less than 0.6
were excluded. The Kaiser-Meyer-Oklin value was 0.901, exceeding the
recommended value o f 0.6 and the Barlett’s Test of Sphericity reached

187
statistical significance (p=0.00), thereby supporting the factorability the
factorability o f the correlation matrix (see T able 22) .

Exploratory factor analysis results showed the presence of 2 components

with eigenvalues exceeding 1, explaining 68.27 percent of the total vari­
ance. The first factor included six items concerning HR function’s role in
strategy implementation. It explained 37.391 percent o f the total variance,
and the Cronhach’s Alpha was .909. This factor was labelled strategic role
of HR function in strategy implementation. The second factor contained
five items about HR function’s role in strategy formulation. It explained
30.882% o f the total variance and had a Cronbach’s Alpha 0.869. This

factor was named strategic HR function role in strategy formulation.

7.3.2.3 Exploratory Factor Analysis Results: Business Strategies

13 items o f the business strategies construct were subjected to EFA using
SPSS. The results are presented in Table 23. The initial un-rotated factors
matrix was computed to help obtaining a preliminary indication of the
number o f factors to extract (Hair et al., 1998).
Initially the suitability o f the data from the 13 items scale was assessed by
examining the correlation matrix. This showed that many correlations
were above the value 0.3. 1 item was excluded as its communality value
was less than 0.6. The Kaiser-Meyer-Oklin value was 0.828, exceeding
the recommended value o f 0.6 and the Barlett’s Test of Sphericity reached
statistical significance (p=0.00), thereby supporting the factorability the
factorability o f the correlation matrix.

EFA results showed the presence o f 3 components with eigenvalues ex­

ceeding 1, explaining 70.186 percent of the total variance. The Catells

188
(1966) scree test revealed that 3 component had to be retained for further
analysis. The un-rotated factor analysis results revealed that all 12 items
loaded onto one factor explaining 70.186% of the total variance. Thus the
12 items were retained for further analysis.

Table 23: Exploratory Factory Analysis o f Business Strategies

Factor Factor Factor
1 2 3
Innovation
Investing in Research & Development .131 .014 .881
Introducing new products and brands innovatively .036 .049 .914
Delivering new products and service .139 .186 .814
Cost-Reduction
Reducing the costs of labour to produce existing products or .248 .765 .057
services.
Reducing the costs of materials to produce existing products .271 .826 .020
or services.
Controlling inventory .056 .806 .179
Improving operational efficiency .394 .711 .032
Quality-Enhancement
Devoting time to quality control .597 .322 .180
Working with customers or suppliers to improve quality of .735 .306 .074
product or service
Using quality circles .770 .189 .054
The effectiveness of company's quality management pro­ .852 .228 .124
gram
Improving the quality of existing products or services. .870 .064 .061
Percentage of variance accounted for 27.524 22.903 19.760
Cronbach's Alpha .864 .838 .856
Total Variance Explained: 70.186
Kaiser-Meyer-Olkin Measure of Sampling Adequacy: .838
Bartlett's Test of Sphericity: Approx. Chi-square:1025.123
Df:66
Sig:.000___________________________________________

Exploratory factor analysis results revealed that the first factor incorpo­
rated five items concerning activities o f enhancing quality of products and
services. It explained 27.524% of the total variance, and had a Cronbach’s
Alpha .864. This factor was named quality-enhancement strategy. The
second factor involved four items o f reducing the costs of organizations. It
explained 22.903% o f the total variance, with a Cronbach’s Alpha .838.
This factor was named cost-reduction strategy. The third factor included

189
three factors about investing in innovation and innovative activities. This
factor explained 19.760% of the total variance, had a Cronbach’s Al­
pha .856. This factor was named innovation.

7.3.2.4 Exploratory Factor Analysis Results: Organizational Per­

formance
12 items of the organizational performance construct were subjected to
exploratory factor analysis using SPSS. The results are presented in Table
24. The initial un-rotated factors matrix was computed to help obtaining a
preliminary indication of the number of factors to extract (Hair et al.,
1998).

Initially, the suitability of the data from the 12 items organizational per­
formance scales was assessed by examining the correlation matrix. This
showed that many correlations were above the value 0.3. 2 items are ex­
cluded as their communality values are less than 0.6. The Kai-
ser-Meyer-Oklin value was 0.834, exceeding the recommended value of
0.6 and the Barlett’s Test of Sphericity reached statistical significance
(p=0.00), thereby supporting the factorability of the correlation matrix.
Exploratory factor analysis (un-rotated) showed the presence of three
components with an eigenvalues exceeding 1, explaining 76.752 percent
of the total variance. The Catells (1966) scree test revealed that three
components had to be retained for further analysis.

The un-rotated factor analysis results revealed that all the 10 items loaded
onto three factor explaining 76.752% of the total variance. Thus the 10
items were retained for further analysis.

190
Table 24: Exploratory Factor Analysis of Organizational Performance
Factor Factor Factor
1 2 3
HR Outcomes
Improvement of staff morale .739 .262 .125
Improvement of employee commitment .829 .305 .175
Improvement ofjob satisfaction .831 .265 .043
Improvement of the ability of staff to move between jobs as the work .744 -.093 .326
demands
Organizational Outcomes
Improvement of quality of product .142 .882 .168
Improvement of public image and good will .161 .859 .179
Improvement of satisfaction of customers or clients .290 .810 .146
Financial Accounting Outcomes
Growth rate of revenues .244 .119 .837
Growth rate of market share .169 .163 .883
Growth of long-run level profitability .091 .218 .867
Percentage of variance accounted for 27.050 25.008 24.694
Cronbach’s Alpha .841 .874 .879
Total Variance Explained: 76.752
Kaiser-Meyer-OIkin Measure of Sampling Adequacy: .834
Bartlett’s Test of Sphericity: Approx. Chi-square:936.893
Df:45
Sig:.000

This first factor included four items about the employee-related outcomes.
It explained 27.050% and had a Cronbach’s Alpha .841. This factor was
labelled HR outcomes. The second factor involves three items about or­
ganization’s quality of product, customer satisfaction, and public image. It
explained 25.008% o f the total variance and had a Cronbach’s Alpha .874.
This factor was labelled organizational outcomes. The third factor in­
corporates three items o f company’s revenue market share and profit­
ability. It explained 24.694% of the total variance and had a Cronbach’s
Alpha .879. This factor was labelled financial accounting outcomes.

7.3.2.5 Exploratory Factor Analysis Results: Chinese Workplace

Culture
5 items o f the Chinese workplace culture construct were subjected to ex­
ploratory factor analysis using SPSS. The results are presented in Table 25.
The initial un-rotated factors matrix was computed to help obtaining a

191
preliminary indication o f the number of factors to extract (Hair et al.,
1998).

Table 25: Exploratory Factor Analysis o f Chinese Workplace Culture

Factor
1
C hinese w ork place culture
Embracing paradox .776
Directness o f interpersonal approach .779
Importance o f saving face (mian zi) .823
Respect for position and authority .798
C ronbach’s A lpha .804
T otal V ariance Explained: 63.038
K aiser-M eyer-O lkin M easure o f Sam pling Adequacy: .741
B artlett’s T est o f Sphericity: A pprox. Chi-square:219.756
D f:6
Sigr.OOO

Initially, the suitability o f the data for the 5 items was assessed by ex­
amining the correlation matrix. This showed that many correlations were
above the value 0.3. 1 item was excluded as their communality values are
less than 0.6. The Kaiser-Meyer-Oklin value was 0.741, exceeding the
recommended value of 0.6 and the Barlett’s Test of Sphericity reached
statistical significance (p=0.00), thereby supporting the factorability of
the correlation matrix.

EFA (un-rotated) showed the presence o f one component with an eigen­

values exceeding 1, explaining 63.038% of the total variance. This factor
had a Cronbach’s alpha value of .804.

192
7.4 Testing the Hypotheses

7.4.1 Methods used in testing hypotheses:

7.4.1.1 Method to Test Moderating Effects

The term ‘moderation’ is employed to describe the situation that the im­
pact of an independent variable on a dependent variable is dependent on
the level of a third variable. There are two ways to test moderating effect.
One is to test the form o f moderation. The other is to test the strength of
the moderation. The distinction between the form and the strength of
moderation illustrates both theoretical and analytical issues. If, theoreti­
cally, the dependent variable is jointly determined by the interaction be­
tween an independent variable and a moderator, it is a form test of mod­
eration. Conversely, the hypothesis that the predictive ability differs
across different levels o f a third variable is concerned with the strength of
moderation (Venkatrman, 1989). The previous SHRM literature exam­
ined both the form and strength of the control variables and found evi­
dence of significant moderators in various contexts. As the focus of this
research was the relationships between business strategies and HRM po­
lices, and the mediating effects o f HR outcomes and organizational out­
comes between HRM policies and financial accounting outcomes, the
joint prediction o f the independent variable and moderator on the de­
pendent variable, or the form of moderation, was not incorporated in the
examination. Instead, the research examined the strength of the modera­
tion, namely, treated the moderators as control variables in hierarchical
multiple regressions.

193
7.4.1.2 Method to Test the Impact of Business Strategies on HRM
Policy Configurations
Hierarchical multiple regression with control variables were used to test
the effects of business strategy on HRM policies. In this test, control
variables including organizational age, size, work-place culture, union
presence, ownership, organizational life cycle and business sector were
entered into analyses at the first step of multiple regressions. The inde­
pendent variables, business strategies, then were entered at the second
step.

7.4.1.3 Method to Test Mediating Effects

This research takes four steps to test the mediating effects. First, the in­
dependent variables have to directly influence the dependent variable.
Second, the independent variables have to directly influence the proposed
mediators. Third, the proposed mediators have to directly influence the
dependent variables. The fourth and final step involves a comparison of
the P values when both the independent variables and the mediating
variable are added to the regression equation. Partial mediation occurs
when the mediator reduces the size of the effect of the independent vari­
ables on the dependent variables. The direction of the effects must also be
as hypothesised. For full mediation, the significant relationships between
independent variables and dependent variables must become
non-significant after the mediator is added to the analysis.

7.4.2 The Im pacts o f Business Strategies on HRM Policies

From the results of our regression analyses in Table 26, it was indicated that
overall the independent variables predicted an acceptable level of change
in the dependent variables. 23.3% of the variance of HR planning was
predicated by the independent variables. 28.3% of the variance of com

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T a b le 26: Testing the Effect o f Business Strategies on HRM policies

Manage ment-
HR Planning Compensation Training Employee
Relationship

Modell Model 2 Modell Model 2 Modell Model 2 Modell Model 2

Standard Standard Standard Standard Standard Standard Standard Standard
- 0 0 0 0 0 0 0 0
Age (log) .026 .100 .036 .108 -.207 -.141 -.252 -.179
Size (log) .004 -.024 -.064 -.089 -.074 -.099 .119 .093
Culture -.099 -.122 -.103 -.118 -.079 -.093 .088 .076
Trade Union
Non-Unionization (reference)
Unionization .021 .035 -.074 -.063 .016 .028 .067 .079
Ownership
COE (reference)
Sate Owned Enterprise -.255* -.187 -.194 -.129 .003 .069 -.064 .008
Joint Venture -.051 .000 -.142 -.098 .034 .082 .043 .092
Privately Owned Enterprise -.084 -.048 -.019 .010 .163 .199 .189 .225
Foreign Invested Enterprise .004 .049 -.017 .027 .010 .057 -.035 .017
Organizational Life Cycle
Starting -.130 -.113 -.156 -.134 -.174 -.153 -.155 -.130
Growing -.155 -.157 -.020 -.025 -.120 -.123 -.058 -.063
Mature (reference)
Declining -.154 -.100 -.206* -.146 -.123 -.069 -.179* -.116
Turning -.078 -.076 -.160 -.157 -.113 -.106 -.053 -.045
Business Sector
Garment (Reference)
Chemicals & Pharmaceuticals .012 .007 .042 .043 -.017 -.018 .040 .041
Electronics & Engineering -.029 .032 .081 .141 -.043 .008 -.049 .008
Finance, Banking & Insurance .107 .128 .152 .177 .056 .076 -.023 .003
Sales & Business Service .087 .135 .128 .175 -.031 .013 -.073 -.024
Mixed -.002 .097 .034 .137 -.109 -.020 -.083 .019

Innovation _ .053 _ .079 _ T_

.029 .052
Cost Reduction — .024 — .067 — .076 — .102
Quality Enhancement — .332** — .293** — .288** — .302**

R2 .118 .233 .166 .282 .167 .269 .153 .282

AR2 .115 .116 .102 .129

F Value (Sig. level) fo r A R2 7.531** 7.881** 6.869** 8.777**

F Value (Sig. level) 1.179 2.232** 1.758* 2.883** 1.764* 2.706** 1.593 2.882**

*statistically significant at 0.05 level; ** statistically significant at 0.01 level

pensation was predicted by the independent variables. 26.9% of the

variance o f the training was predicted by the independent variables and

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28.2% o f the variance o f management-employee relationship was pre­
dicted by the independent variables.

When linking the results to the hypotheses, it was found that quality en­
hancement strategy had dominant status in the researched firms and had
significant positive impact on all o f the four HRM policy configurations:
HR planning (P=.332, p 0.01), compensation (P=.293, p 0.01), training
(P=288 , p 0.01) and employee-management relationship (p=.302,/? 0.01),
which supported H2. It was found that no significant impact of innovation
and cost-reduction on HRM policies configurations occurred. Thus, the
HI (i) was supported, while HI (ii) and H3 were not supported.

It appeared that firms with a quality enhancement strategy were more

likely to adopt formal HR policy configurations, while those with an in­
novative strategy or a cost-reduction strategy showed little concern on HR
policy choice.

7.4.3 The Effects of HRM Polices on HR Outcomes, Organizational

Outcomes and Financial Accounting Outcomes
The equation 1 o f HR outcomes in Table 27 showed that HR planning
policy configuration (p=.170, p 0.05), training policy configuration
(P=.197, p 0.05) a n d management-employee relationship policy con­
figuration (P=247, p 0.01) positively predicted the change in HR out­
comes. 45.1% o f the total variance of HR outcomes was explained by
independent variables. As 3 out o f 4 HRM policy configurations posi­
tively influenced HR outcomes, H4a (i) was partially supported. Re­
garding the impact o f the HRM policies on organizational outcomes, HR

196
planning (P=.282, p 0.01) and management-employee relationship
(P=.290**, p 0.01) positively predicated the change in organizational
outcomes (R2=28.0%). As two out of four HRM policy configurations
positively predicted the change in organizational outcomes, H4a (ii) was
partially supported. It was found that all the four HRM policy configura­
tions had no significant influence on financial accounting outcomes,
which made H4a (iii) supported. This was consistent with Dyer and
Reeves (1995) argument that financial-related outcomes were more distal
than HR and organization-related outcomes to HRM and organiza­
tional-based outcomes.

7.4.4 The Effects of the HR Outcomes and Organizational Outcomes

HR outcomes positively predicated organizational outcomes (p=.447 **, p
0.01) and financial accounting outcomes (P=.448**,p 0.01). 30% of the
variance in organizational outcomes in this equation was predicated by the
independent variables, and 30% of the variance in organizational out­
comes in this equation was predicated by the independent variables, and
21.6% of the variance in financial accounting outcomes was predicated by
the independent variables (see Table 27). Thus, H4b (i) and H4b (ii) were
supported by the empirical results.

Organizational outcomes positively predicated the change in financial

accounting outcomes (P=.427**, p 0.01), and 24.7% of the variance in
financial accounting outcomes were predicted by the independent vari­
ables. Thus, H4c was supported.

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T a b le 2 7 : T e stin g th e M e d ia tin g E ffec ts o f H R O u tc o m e s
Independent Variables HR Out­ Organizational Financial Accounting
comes Outcomes Outcomes

Step 1 Step2 Step3 Step4 Step2 Step3 Step4

Standard Standard Standard Standard Standard Standard Standard
P P P P P P B

Age (log) .080 -.159 -.190 -.189 .169 .158 .136

Size (log) .002 .164* .203** .164** -.096 -.114 -.097
Culture -.171 -.009 .082 .054 -.109 -.058 -.039
Trade Union
Non-Unionization (reference)
Unionization -.088 .062 .115 .094 -.009 .023 .027
Ownership
COE (reference)
SOE .067 .164 .073 .139 .258* .200 .231*
JV -.004 .083 .076 .084 .084 .070 .085
POE -.030 .201 .196 .212 .164 .152 .176
FIE -.194* .000 .079 .071 .012 .102 .091
Organizational Life Cycle
Starting .190* -.005 -.104 -.075 .082 -.012 .004
Growing .026 -.110 -.137 -.120 .092 .067 .082
Mature (reference)
Declining -.011 -.004 -.032 .000 -.053 -.058 -.048
Turning .172* -.075 -.149 -.138 -.126 -.215** -.196*
Business Sector
Garment (reference)
Chemicals & Pharmaceuticals .068 -.037 -.055 -.062 -.005 -.036 -.032
Electronics & Engineering -.040 -.147 -.135 -.132 .020 .043 .036
Finance, Banking & Insurance .005 -.047 -.046 -.049 -.017 .002 -.019
Sales & Business Service -.061 -.014 .022 .008 .013 .061 .038
Mixed -.039 -.157 -.132 -.143 .010 .035 .026

HR Planning .170* .282** __ .219** .179 — .109

Compensation .166 .057 — -.005 .119 — .051
Training .197* -.135 — -.207 .112 — .032
Management-Employee Relationshi .247** .290** — .199** .008 — -.093
HR Outcomes — .447** .368** — .448** .410**

R2 .451 .280 .300 .355 .184 .261 .276

F Value (Sig. level) 5.700** 2.710** 3.544** 3.626** 1.564 2.917** 2.512**
’ statistically significant at 0.05 level; ’ ’ statistically significant at 0.01 level

198
Table 28: Testing the Mediating Effects o f Organizational Outcomes
Independent Variables Organizational Out­ Financial Accounting
comes Outcomes
Step 1 Step2 Step3 Step4
Standard Standard Standard Standard
3 3 3 B

Age (log) -.189 .136 .236 .193

Size (log) .164* -.097 -.199* -.147
Culture .054 -.039 -.145 -.056
Trade Union
Non-Unionization (reference)
Unionization .094 .027 -.046 -.001
Ownership
COE (reference)
SOE .139 .231* .163 .189
JV .084 .085 .033 .060
POE .212 .176 .077 .112
FIE .071 .091 .016 .070
Organizational Life Cycle
Starting -.075 .004 .050 .026
Growing -.120 .082 .115 .118
Mature (reference)
Declining .000 -.048 -.080 -.048
Turning -.138 -.196* -.127 -.154
Business Sector
Garment (reference)
Chemicals & Pharmaceuticals -.062 -.032 .008 -.014
Electronics & Engineering -.132 .036 .087 .076
Finance, Banking & Insurance -.049 -.019 .036 -.004
Sales & Business Service .008 .038 .039 .035
Mixed -.143 .026 .071 .069

HR Planning .219** .109 — .043

Compensation -.005 .051 — .053
Training -.207 .032 — .094
Management-Employee Relationship .199* -.093 — -.153
HR Outcomes .368** .410** — .299**
Organizational Outcomes — — .427** .301**

R2 .355 .276 .247 .335

F Value (Sig. level) 3.626** 2.512** 2.709** 3.147**
♦statistically significant at 0.05 level; ♦♦statistically significant at 0.01 level

199
7.4.5 The Mediation Effects of HR Outcomes and Organizational Out­
comes
As described earlier, to test the mediation effects (see Table 27), inde­
pendent variables have to directly impact dependent variables, and me­
diator, and the mediator has to directly impact the dependent variables.
Lastly, both independent variables and mediator are entered into equation,
partial mediation occurs when the mediator reduces the size of the effect
of the independent variables on the dependent variables. The direction of
the effects must also be as hypothesised. Full mediation occurs when the
significant relationships between independent variables and dependent
variables must become non-significant after the mediator is added to the
analysis (compare step 4 and step 2). Thus, our data analysis results
supported for H5a and Hab.

7.4.6 The Effects of Control Variables

According to the results o f in table 26-28, organizational age, workplace
culture, trade union presence, and business sector had no mediating ef­
fects on any relationships proposed by H1-H5. Thus, H6 (i), H6 (iii), H6
(iv) and H6 (vii) were not supported.

Regarding the effects o f organizational size, it positively impact organ­

izational outcomes. But, as not all the proposed hypotheses (H1-H5) were
supported by the empirical data, H6 (ii) was merely partially supported. In
terms o f ownership, state owned enterprises appeared to have a higher
level o f financial accounting outcomes. Foreign invested enterprises had a
comparably lower level of HR outcomes. Similarly, as only some of the
hypotheses o f H1-H5 were supported, the H6 (v) was only partially sup­
ported. In respect o f organizational life cycle, it was found that firms at

200
starting up stage had a higher level o f HR outcomes while those at turning
around stage had higher level o f HR outcomes but a lower level of fi­
nancial accounting outcomes. Thus, H6 (vi) was also partially supported.

7.5 Summary

This chapter presented the results o f a series of statistical tests. First, the
data preparation and assumption checks were conducted. Second, it de­
scribed the results o f exploratory factor analysis. Third, the results of
hypotheses testing were presented. These analyses were conducted with
SPSS for Windows 10.0. Next chapter will be discussions on the findings
of this chapter.

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Chapter Eight

Discussion

202
Chapter 8 Discussion

8.1 Introduction
This chapter presents a discussion based on the findings of this research. It
is comprised of three parts. The first part discusses the factorial validity of
the constructs in this research. The second focuses on the current state of
the application of SHRM in the PRC. The third part discusses the results
of conceptual model tests.

8.2 The Factorial Validity

Statistically, the results obtained from the exploratory factor analysis
suggested that the business strategies, HRM policy configurations and
organizational performance measurements had an overall validity, which
was consistent with previous empirical research. There were no item
overlaps and all the dimensions of business strategies, HRM policy con­
figurations and organizational performance were internally consistent.
These measurements of HRM policies were selected from previous re­
search, mainly conducted in Western settings. These findings indicated
that the measurements of business strategies, HRM policy configurations
and organizational performance utilized in the present study can be used
with confidence.

Theoretically, the validity of these measurements, which were created

originally in Western settings, implied a convergence trend of organiza­
tional variables at conceptual level, which was also proved in the previous
research, for example, that of Akhtar et al. (2008) and Chow et al. (2008).
According to convergence theory, driven by the market and technological
forces, certain specific management functions and practices are necessary

203
for administration and coordination in an industrial economy. In addition,
with the emergence of capitalist economy, the PRC’s value system will
change and become more similar to that of main Western capitalist
economies. As a result, management practices developed in Western
cultures should be capable of generalization to other industrial settings
(Negandi, 1975; Pascale and Maguire, 1980, Brewster, 1999, Harris et la.,
2003; Sparrow et al., 2004; Warner, 2008).

Practically, this convergence is a reflection of the reality of the changes in

HRM of the PRC. As Akhtar et al. (2008) argued, the apparent conceptual
convergence in strategic HRM practices were rooted in the phenomenal
change that had taken place in the personnel practices of Chinese enter­
prises since the economic reforms began in 1978. In this thesis, it is ar­
gued that there are two rounds of changes in HRM in the PRC: the first
round included the removal of the Soviet-style and centrally planned
model of HRM and the adoption of a Westem-style model while re­
maining certain Chinese characteristics; the second round is an on-going
change aiming at the adoption of a SHRM model.

Specifically, the changes in the first step included abandoning cra-

dle-to-the-grave welfare, and adopting the ‘three systems reforms’ that
involved the introduction of labour contracts, performance-related reward
systems, and contributory social security, which are typical Westem-style
HRM practices.

The second step is an ongoing reform of HRM to become more strategic.

The reasons and driving forces for adopting SHRM include the needs and
requirements fr om both inside and outside of enterprises. Internally,
Chinese enterprises need to further develop and to expand business at a

204
cross-regional or even a cross-national level. This needs a support to the
strategy from HRM. In both FIEs and reformed SOEs, HRM managers are
well educated in business management, which provided the intellectual
support for using SHRM. Externally, the deepening of internationaliza­
tion, exemplified by the accession into the WTO, has created the condi­
tions to adopt strategic HRM practices in the relatively developed coastal
regions (Rowley et al., 2004). Therefore, there are both internal and ex­
ternal pressures encouraging the convergence in strategic HRM practices.

The factorial validity of the HRM policy configurations meant that in

practice the PRC’s HRM policies had obtained inter-consistency. Put
another way, activities of different HRM functions matched and sup­
ported each other. This implied that decision-makers in the Chinese en­
terprises started to adopt a strategic and systematic view of the HRM de­
signing, and supported the argument o f this thesis that the PRC’s HRM is
changing to a strategic model to meet the requirements of the deepening
and furthering of globalization and marketization.

The factorial validity of strategic role of HR function proved that HR

function in the researched firms not only facilitates the implementation of
business development, as previous researchers examined in their work,
but also played a significant role in business strategies decision-making
process. This, on one hand, empirically supports the theoretical argument
of changing role of HR function (Storey, 1992; Ulrich 1997, 1998) in
terms of the strategy formulation role and the strategy implementation
role. On the other hand, it reflected that the Chinese enterprises were in­
creasingly aware o f the significance of and the use of the strategic roles of
the HR function, rather than mere administrative roles.

205
Finally, the exploratory factorial analysis of organizational performance
indicated that the measures of organizational performance had an overall
validity. This offered solid empirical evidence for the deconstruction of
the organizational performance construct, and was consistent with the
conceptual work of Dyer and Reeves (1995), who argued that HR out­
comes and organizational outcomes played a mediating role between
HRM policies and financial accounting outcomes. Certain previous re­
search attempted to explore the elements of performance (for example,
Ngo et al., 2008; Chow et al., 2008, Akhtar er al., 2008). Ngo et al (2008)
measured organizational performance from two aspects including finan­
cial performance and operational performance. Similarly, Akhtar et al.,
(2008) divided organizational performance into two sub-constructs:
product/ service performance and financial performance, while Chow et
al., (2008) examined the impact of HRM on sales growth, profit growth
and turnover rate. However, the structure of organizational performance
and the relationships between the elements of organizational performance
still remained un-researched in empirical work. This thesis drew on Dyer
and Reeves’s (1995) model to examine the structure of organizational
performance and the mediation effects of HR outcomes and organiza­
tional outcomes.

8.3 The Application of HRM Practices

In last two decades, especially after the PRC’s entry into WTO, HRM in
the PRC enhanced the speed of reform to reach a strategic model. It is
argued that there are two rounds of HR reforms in the PRC. The first
round resulted in a Westem-style HRM with Chinese characteristics,
while the second one is an ongoing change to adopt a strategic model of
HRM. This section will discuss the main features o f Chinese HRM, in

206
terms of the role o f HR, HR planning, HR staffing, HR appraisal, HR
compensation, HR training and development and management-employee
relationship, toward the end of assessing the current status o f HRM in the
PRC.

8.3.1 The Role of HR function

Among the mean scores o f items used to measure the strategic role of HR
function, a majority o f the items had mean scores close to the mid-point 3.
Only two items, ‘how effectively does HR evaluate the current organiza­
tional strategy and provide suggestions on change if the current strategy is
inappropriate’ (SI5) (t. -2.871, p .01) and ‘how effectively does HR
evaluate and change current organizational structure (SI6) (t . -2.449,
p .05)’, were with mean scores significantly smaller than 3. ‘The extent
that HR is considered part o f the top management’ (SF2); ‘how well the
HR strategy is consistent with firm’s strategy (SF8)’; and ‘the extent that a
formal document on HR planning is available to strategic planners (SI1)’
had relatively high mean scores (over 3, but not statistically significant).
This means that firms in the PRC have been aware of the importance of
the HR function, and the position o f HR in firms has been enhanced to the
top management-level. This actually is a precondition of adopting a
SHRM model. Moreover, HR function was found active in aligning HR
strategies with business strategy. These two findings together implied that
the HR function in the PRC already achieved a strategic position in firms
and HR system started to become consistent with the company-level
business strategies.

Four items, including ‘the extent that the HR department is consulted by

senior management (SF1), line managers (SF3) and supervisors (SF4)’,

207
and ‘the extent that HR can hold programmes to eliminate the resistances
to changes (SI2)’ had means scores between 3.00 and 3.10 (but
non-significantly larger than 3). This meant that the firms researched in
this thesis recognized the important of these issues, but had some problem
when carried the out these activities. As Zhu (2005) reported, although
HR was considered a part of the top management, the duties of this stra­
tegic HR were not fulfilled as well as expected.

Items, including ‘the extent that the company’s strategic plan includes HR
issues explicitly (SF5)’ and ‘the extent that HR build up employees ca­
pacity for changes (SP6), explain the requirement of organizational
changes (SF7)’, ‘the extent that HR can identify the resistance to changes
(SI3)’, ‘how effective is it that HR evaluate the current people and pro­
vide suggestions on change if the current people is inappropriate (SI4)’
how effective is it that HR evaluate the current rewards system and pro­
vide suggestions on change if the current rewards system is inappropriate
(SI7) and ‘managerial and producing process (CA8)’ had mean scores
lower than 3 (but non-significantly smaller than 3) and of them ‘how ef­
fectively does HR evaluate the current organizational strategy and provide
suggestions on change if the current strategy is inappropriate’ (SI5) and
‘how effectively does HR evaluate and change current organizational
structure (SI6)’ had mean scores significantly lower than 3. These find­
ings meant that HR had an unsatisfactory performance in these activities.

Basically, the HR function worked well in achieving a high position in the

organization, proactively detecting shortcomings in the organizations and
providing suggestions on change. However, in influencing the deci­
sion-making process and implementing the plans HR made, HR could not
perform equally well. Furthermore, HR performed even worse when it

208
was needed to deeply influence specific work processes and organiza­
tional structure. This problem was also found by Zhu (2005), that HR was
not devolved enough down to line managers. The reasons of this uneven
performance on different aspects o f strategic HR function might be two­
fold: first, HRM in China has just started changing to a strategic model. It
has achieved a good position in company. More efforts should be made to
build up the abilities of a strategic HR to actually influence the deci­
sion-making process and to help initiating changes in organizational
processes and structure. Second, the traditional Chinese culture addresses
the importance o f ‘main zV (face), which requires people to concentrate
on their own work and not to criticize or even just disturb other people
(Akhtar et al., 2008). This cultural factor might also partially explain the
current state of the role of HR function in the PRC.

8.3.2 HR Planning
The personnel system started operating after the founding of the ‘New
China’ in 1949 under the Communist Party. Until the end of the Cultural
Revolution, the personnel management system was highly characterized
by the state control under the planned economy regime. This personnel
system can be portrayed as a central-controlled life-long employment
system. Under the old planned economy, the personnel policies and
practices were strictly under the control of the state via related labour and
personnel administrative authorities and bureaus. The state determined
both the number o f employees to be employed and the wage scales of
workers in different categories. Thus, the management of firms played
only an administrative role. After the open-door reforms, firms were
granted the discretion to determine the number of their employees and to
select in accordance with the requirements of business from labour market.

209
Management of firms started to deal with the HR planning ever since then
(Cooke, 2005).

In this thesis, the research findings showed HR planning activities gained

much attention. It was reflected that HR planning had a long term concern
(Planl), and firms conducted explicit job analysis (Plan3) and clearly de­
fined job description (Plan4), and that the job was more complex than
before (Plan6). At the same, the formality of HR planning (Plan2) in the
researched firms had modest scores (not significantly different from 3,
mid-point of the scale). There was a lack of employee involvement in the
HR planning (Plan5), which had a score significantly lower than 3. Zhao
and Wu (2003) reported that in their survey, 75% of 31 companies had a
formal HR planning system and 67% of them conducted job analysis.
From these findings, it was indicated that HR planning was already re­
garded as an important part of the long term plan, which reflected a stra­
tegic and flexible view on HRM rather than a reactive view of
self-adjusting to outside changes. Jobs were more enriched and more
complex than before, and were well analyzed and defined via job analysis
and job description (see also, Tang and Ward, 2003). In terms of the
formality of HR planning, it was showed that firms were working on
building formal HR planning systems. But efforts were still needed to be
made to further improve the quality and formality of HR planning system.
In this process of improving HR planning quality, the incorporation of
employee involvement is a crucial factor, as it can increasing employees’
understanding of and commitment to HR planning. However, the em­
ployee’s involvement into HR planning was not widely used in practice in
the PRC.

210
8.3.3 HR Staffing
According to the existing literature, selecting and placing people in the
right positions enables them to perform effectively, while a mismatch
between jobs and people can substantially reduce the effectiveness of
work (Bemardin and Russell, 1998). But before the economic reform, this
concept was barely used in the PRC’s personnel system, as all the per­
sonnel activities were centrally planned and arranged according to po­
litical considerations (Zhu and Dowling, 2002). Since the beginning of
economic reforms, HR staffing practices have been changed to a more
complex, hybrid management model as marketisation advances and as
enterprise autonomy increase (Warner, 1998). As Zhu and Dowling (2002)
reported in their research findings from a survey in 1994/1995, staffing
practices were more formalized and more like Westem-style model on
certain aspects, such as the use o f written job description, the use of local
labour market and the ability oriented selection principles. It was also
found that in the selection criteria, personal qualification and file records
outweighed the political background (Zhu and Dowling, 2002). Accord­
ing to the finding o f the research conducted in 1997/1998, Benson et al.
(2000) found although some numerical flexibility, like the right to dismiss
employees, had been granted to firms, selection of employees remained
external to the researched SOEs. In PIEs, the technical and managerial
employees were selected by the owner, while HR managers were only
able to select general staff and low skilled workers (Zhu, 2005).

In this thesis, it was demonstrated by the research findings that HR

staffing practices have become more Westem-style and formal. Firms
used explicit recruitment criteria (Staf3) and adopted an open procedure
(Staf5) and used both internal and external recruitment sources (Stafl).
Similar findings were reported by Wang and Zang (2005). They found

211
that firms in the PRC used formal recruitment and selection procedures,
tests, job analysis and descriptions. It was also found in this thesis that
firms e mphasized the capability and skill (Staf4), which echoed the
findings of Zhu and Dowling (2002). Also, Morris and Shen (2002) ar­
gued that while length o f service and party loyalty was still important,
there was a considerable shift for a promotion system that formerly relied
heavily on ‘redness’ or partly loyalty. However, the selection procedure
was modestly extensive (Staf2), which meant an all-round solution and
systematic mechanism were still needed to be constructed, though firms
had gained the awareness of using formal staffing procedures.

In this thesis, the findings o f all the five items of staffing practices re­
flected that firms had already replaced the political background criterion
with a skill-ability one, started to construct, and used formal recruitment
and selection procedures and measures. But further efforts were needed to
advance the recruitment and selection procedures to a more systematic
and complex level, for example, to achieve a richer content and a broader
coverage.

8.3.4 HR Appraisal
According to the literature, during Mao’s regime, there were no specific
criteria for performance appraisal. Appraisal was conducted regularly for
only managerial and technical staff in state owned enterprises (Zhu, 2005).
Since the economic reforms, performance appraisal has been emphasized
and used to decide the pay increase/ reduction and promotion/ transfer/
dismiss in SOEs. In POEs, the criteria were explicit and the results of
appraisal were linked with bonuses and promotion, and a precondition of
this link is the fact that POEs’ compensation composed of low salaries and

212
high bonuses. In FIEs, the appraisal system was formal and conducted
regularly to determine the salaries and promotion. The same criteria were
applied for different groups, while the weighting given to each item varied
between different groups (Zhu, 2005). Zhu (2005), based on a comparison
between two surveys conducted in 1994/5 and 2001/2 respectively, con­
cluded that performance o f employees was formally assessed in more
enterprises with standardized forms and criteria, with department man­
agers still holding the responsibilities for carrying out this practices. The
purpose of performance appraisal was mainly focused on administration
rather than development and communication.

In this thesis, HR appraisal activities were aimed at providing criteria for

pay rise and promotion (Appr2) rather than further development. This was
in line with the findings of Zhu’s (2005) research. However, appraisal
activities were mainly conducted by HR specialist (Appr3), which was
different to previous findings that department managers carried out the
appraisal (Zhu, 2005). This indicated that the HR role participated in the
line management and further implies a strategic change. There was not
apparent preference between group and individual criteria (Appr4), or
performance oriented and behaviour oriented (Apprl). Zhu (2005) re­
ported that group criteria were adopted by using same criteria for whole
firm while giving different weighting to each criterion for different groups.
The results of this research indicated a move to the individual criteria from
group criteria. As to the orientation of the appraisal, no preference was
found between a performance and a behaviour orientation. This mirrored
the fact that both of performance and behaviour were assessed in work.
For example, the criteria used in SOEs included attitude, competence,
effort and performance records (Zhu, 2005). This change reflected an
emphasis on the sophistication and complexity on the performance ap-

213
/
praisal design and a stress on the balance between group and individual
criteria. Particular preference to the frequency of the appraisal (Appr5)
was not found in this research. This might be due to the variations between
different ownerships and size. For example, the POEs were more likely to
conduct performance appraisal frequently and regularly than SOEs and
FIEs (Zhu, 2005).

It can be seen from the finding or this thesis that the performance appraisal
practices in the PRC had two main changes: first, it emphasized both
group criteria and individual criteria, seeking balance between perform­
ance and behaviour orientations. Second, HR took the responsibility for
conducting performance appraisal activities, different from the previous
way that departmental managers carried out the appraisal. This could
improve the level o f standardization of the appraisal work. In addition to
these changes, Appraisal was characterised by a balance between merit
and behaviours. Overall, the appraisal practices were more formal, more
complex and more standardized, which was also found by Wang and Zang
(2005). However, the goal o f appraisal was still focused on salaries and
promotion determinations, rather than development. This reflected the
needs of long-term and strategic thinking and a developmental view in
designing the appraisal system.

8.3.5 HR Compensation
As indicated by the literature, the wage systems in the PRC had been
controlled by the government before the economic reforms (Ding and
Warner, 2001; Cooke, 2005). In the publicly owned sector, there were
three major reforms o f compensation system: between 1953 and 1956, in

214
1985 and in 1993. Each o f the reforms was an adjustment to the social and
economic development of the era.

The first reform aimed to bring to an end the dual system of pay made up
of material supply and monetary wage and to move to a salary-based pay
system (Tien, 2000). It included the use o f the principle o f ‘distribution on
the basis o f labour’ and the introduction of a nation-wide Soviet-style
wage grade system (Takahara, 1992). The second major compensation
reform was implemented in 1985 to introduce the ‘structural wage sys­
tem’ with professional wage as it main component. It was designed ac­
cording to the four factors emphasized by the International Labour Or­
ganizational in 1950: knowledge required, responsibility assumed, work
intensity involve; and working conditions (Hu and He, 1992). There were
four parts in structural wage system: basic wage, positional wage, lon­
gevity pay and bonus (Cooke, 2005). The third reform was introduced in
1993 in which the state separated the pay system of the public sector from
that for the government organizations (Kang, 1996). It also set up for the
first time pay systems that were considered to be appropriate for each type
of public sector (Cheng, 2000). This reform led to the establishment of
five pay systems and two parts in order to reflect the diverse range of jobs
in the sectors. The five pay system referred to the individual system for
each sector. Wage package in each pay system was divided into two parts:
fixed-wage and flexi-wage, in theory on a 70 per cent and 30 per cent ratio
(Cooke, 2005).

In the private sector, wages were largely determined by the employers

with little scope for bargaining or employee involvement, although, in
theory, the state requires employers to set up a collective negotiation
system with their employees. There were increasing intra-sectors gaps in

215
/
the wage levels across different types of ownerships in the private sectors
(Cooke, 2005).

In the early 1990s, Employee Share Ownership Schemes (ESOS) were

first adopted in SOEs, followed by some Town and Village Enterprises
(TVE). Since 2000, ESOs have become an important agenda in the
deepening reform of SOEs. Benson et al. (2000) found that profit-sharing
schemes existed in half of his researched companies in one form or an­
other. In some companies, employees were given a priority in purchasing
the limited shares of the company available to the public, while some
other companies offered their shares to employees in collective ownership.
But the SOEs were criticized in using ESOS for several reasons. First, the
long-term strategy of low wages and high welfare prevented employees
from accumulating savings to invest in ESOs. Second, there was a lack of
transferability of shares. Third, the egalitarianism in the profit sharing
defeated the purpose of motivation.

Recent trends of compensation in the PRC included that, first, perform­

ance has become the key determinant factors of wage level determination.
Second, pay rises and individualized pay packages were used to recruit
and retain key employees. Third, a dual labour strategy was used in de­
signing compensation schemes, in which cheap labour tended to have a
low and undifferentiated wage package, which the well-rewarded pro­
fessionals and technical staff were offered a much wider variety of pay
schemes (Cooke, 2005; Zhu, 2005).

Overall, the compensation system in the PRC become increasingly more

sophisticated, evolving from the earlier Soviet-style grading system to a
variable pay system with more emphasis on performance and profit

216
sharing aimed to motivating long term performance of employees (Cooke,
2005). It was clearly showed in Zhu’s (2005) research findings that the
PRC had initiated a trend towards a performance-based compensation
system. Firms under different types of ownerships had fairly similar ap­
proaches to general compensation practices, such as placing emphasis on
material incentives by including bonuses in pay packages and linking pay
to performance rather than seniority.

In this thesis, it was found in this thesis that compensation in the re­
searched fir ms were mainly in a form of a standard, fixed package
(Comp3). This was consistent with Cooke’s (2005) finding about the
public sectors pay package ratio (70 per cent fixed pay and 30 per cent
bonus). In POEs, a grading system of compensation packages were used,
and the pay package was determined based on position, qualification,
skills and seniority. However, there were other forms of welfare benefits,
such as pension insurance, medical allowances, housing fund, and so on
(Zhu, 2005). It was also found in this thesis that the compensation system
had relatively low incentives (Comp4). This might be due to the fact that
the compensation package was composed of largely fixed salaries
(Comp3) and the egalitarianism in the welfare schemes (Cooke, 2005). A
relatively high employment security in compensation (Comp6) reflected a
characteristic of stability in the compensation systems. Although differ­
ences in compensation were huge between different groups of workers
and between industries (Cooke, 2005), the stability and egalitarianism still
existed between members in same group or industry.

A short-term-incentive orientation (Comp5) was also found by Zhu’s

(2005), who attribute this problem to many aspects of corporate govern­
ance, including the appointment of general managers, and the regulatory

217
system. The compensation was mainly determined by the position rather
than skills and ability in work (Comp8). Empirically, Goodall and Warner
(1997) found that age-related and service-time wages were still used in
many enterprises, which reflected the importance of loyalty and seniority
of employees in a firm (Jackson and Bak, 1998). Participation programs
were not widely used (Comp7). This finding differed from that reported
by Cooke (2005) that Employee Share Ownership Schemes (ESOS) had
been promoted and implemented in SOEs and COEs since the early 1990s.
It might because SOEs now went to be listed, and the ESOS schemes were
also integrated into the broader public-listed schemes. Besides, in this
thesis, COEs only account for 10% of the sample and was not big enough
to reflect the use of financial participation schemes. In FIEs, schemes like
executive stock options were only offered to senior managerial staff (Ding
et al., 2006). No particular preferences between high and low base salaries
(Compl) and between seniority and merit orientations (Comp9) were
found. Perks in compensation were offered at a modest level (Comp2).
Consistent with Morris and Zhang’s (2002), in SOEs, pay packages were
dependent on multiple factors, including job category, qualifications and
years of service. This finding seemingly contradicts that of increasing use
of performance related pay. For example, Ding et al. (1997) found that
managerial pay increases were related to either the performance of the
individual manager or the overall performance of the organizations. This
might because that Ding et al.’s (1997) research was focused on the
managerial staff, while firms in the PRC used a dual labour strategy,
which offer cheap labour low and fix pay, while giving managerial and
technical staff performance-related pay (Cooke, 2005) or an annual salary
system and executive stock options ( Ding et al., 2006). Thus, the overall
pattern reflected neither the trait of a performance-related pay system nor
the preference of the proportion of basic salaries.

218
To conclude, the findings of this thesis indicated that the compensation in
the PRC was in a pattern of fix package plus many perks, with a modest
proportion of basic salaries. Although a moderate level of the number of
perks existed in compensation, the proportion of the packages made up by
the perks is not big. Thus, the compensation generally was still charac­
terized by standard, fixed packages rather than flexible packages, which
consequently generated low and short-term incentives. Compensation was
position-oriented rather than skills-oriented. This fact would make people
focus on the ‘climbing the ladders5 in the hierarchy of the organization
rather than improving the skills and technology and even the quality of the
products and services. No apparent signals indicated whether the empha­
sis was on seniority. This indicated at any rate that seniority has lost the
dominant position in determining compensation. There is a lot of work to
do to improve the flexibility of compensation and to change it to be more
merit and performance-based, and to generate long-term incentives.

8.3.6 HR Training and Development

According to the existing literature, from 1949 to 1966, the state imple­
mented an anti-illiteracy movement, in which all workers who were illit­
erate or semi-illiterate had to undertake state education in their spare time.
In 1966 the Cultural Revolution stopped the training programmes. From
the early 1980s, training programmes were mainly focused on making up
for the loss of training and education under the Cultural Revolution. All
workers without junior secondary school qualifications should attend
courses organized by the enterprises. Nearly 200 new higher education
institutes were built for managerial training. After mid-1990s, two major
state-driven training initiatives played an important role in much of the
training and assessment: positional training and vocational training. In

219
addition, a dual-certificate system was introduced in which each indi­
vidual worker was required to possess both occupational and positional
qualification certificates to work in the post.

Over recent years, with the development of a market-oriented economy

and the furthering and the deepening of internationalization of Chinese
economy, a great number of MNCs and JVs started to operate in the PRC.
They transferred more formal and sophisticated training programmes into
the PRC. Besides, the rapid growth o f commercial training organizations
with an expanding range o f training service provisions served as a driving
factor for firms to spend more on training their employees and to rely
more on external training bodies to provide the training (Wang, 2002;
Cooke, 2005). Last but not least, the progress of globalization and the
needs to match international standard was also a driving factor to improve
training system. For example, the last decade witnessed a tidal wave of
applications for ISO 9000 and ISO 14000 quality series accreditation by
many business organizations in the PRC, which required an increase in
training to fulfil the accreditation requirements (Cooke, 2005). The entry
into the WTO also required training for the WTO rules and international
trade and management rules (Zhu and Warner, 2005).

In terms o f training programmes in enterprises, from 1994/5 to 2001/2 the

training programmes had been improved on certain aspects, including
employees’ interpersonal and teamwork abilities, employees’ knowledge
o f competitors, new technologies and enterprises’ culture, employees’
ability to do different jobs, to do future work, and the quality of entrance
training when employees first work in enterprises, but still under the ex­
pectation o f people (Zhu, 2005).

220
It was reflected by the findings of the thesis that the training was produc­
tivity oriented (Trai5). Similar findings were reported by Akhtar et al.
(2008). Zhu (2005) found that by 2001/2 training programmes were
mainly focused on on-the-job training and improvement of labour pro­
ductivity. Training was used at a low level for increasing workforce
adaptability and employee commitment in 1994/5, with somewhat higher
results in 2001/2. In the mid-1990s, technical training rather than the
behaviour training remained standard practice (VonGlinow and Tea­
garden, 1990). In this thesis, it was found that training credits were not
necessary for promotion (Trai4) but the priority of training went to em­
ployees who had a good merit (Trai9). This was consistent with previous
findings, as pointed out by Zhu (2005) that there were needs of the im­
provement between training and career development.

Training activities were off-the-job (Trai7) more than on-the-job. This

finding is different from previous findings. Zhu (2005) reported that in the
1990s, the use o f on-the-job training was still more widely used than the
off-the-job training, although there were increases in all types of training.
This change might be due to the growth of the number of FIEs and the
transfer of Westem-style HR practices to Chinese enterprises, as FIEs
used to offer far more off-the-job training than others (Zhu, 2005).

No preference was found on whether training is extensive (Trai3);

whether the selection of trainees was based on hierarchy or egalitarian
(Trai8). These findings reflected a movement away from the state that
trainees were selected from the mid-1990s, when decisions to send em­
ployees for training were made by senior managers, and were often in­
fluenced by one’s connections rather than one’s merits or needs, and
employees did not view training as a real, non-monetary, reward. In the

221
twenty-first century, companies tended to link the training programmes to
performance of individuals and groups (Braun and Warner, 2002). It
further implies a move from the old personal-relation-based style to per-
formance-and-merit-base style.

It was unclear whether firms regularly conducted training (Trail),

whether the training was narrow and specific or broad and general (Trai2).
This findings were in line with previous report that the specific orientation
training programmes and periodical training needs analysis scored 3 of a
five-point scale, which indicated that the there was no particular prefer­
ence on specific or general training design (see, Wang and Zang, 2005).
Similar findings were reported by Akhtar et al. (2008) and Zhang and Li
(2009), in terms of the periodicity of conducting training programmes
(with a mean close to mid-point on the measuring scale). Also, no par­
ticular preference was found between the external and internal experts
used to deliver the training (Trai6). Braun and Warner (2002) found that,
although companies used both external or internal resources in training
practices, some o f the companies put a strong emphasis on external re­
sources while others main used internal resources. The degree to which
training was externalized depended on whether the necessary training
skills were available within the company, and whether training could be
provided in a cost-efficient way.

The change to a more formal and sophisticated style was not apparently
reflected in the findings of this research, neither was a long-term orienta­
tion. Training was recognized as an important part of the HR, and people
were offered more opportunities to take the off-the-job training. Addi­
tionally, multiple sources were employed from both inside and outside of
enterprises. Meanwhile, there was a apparent move from the old seniority

222
and personal relations based training opportunity distribution to a egali­
tarian way. However, further efforts were needed to broaden the training
programmes and to link the training to other HR functions, like career
development (and promotion). Also, training should not be only focused
on improving productivity bout also improving the ability and adaptability
of employee to future work, a strategic investment in firms’ human re­
sources (Tang and Ward, 2003; Zhu, 2005).

8.3.7 Management-Employee Relationship

According to previous researches, like Ng and Warner (1998), Cooke
(2005), in the PRC, only one trade union- the All-China Federation of
Trade Unions (ACFTU) - is recognized by the Chinese government. The
trade union performed a dual-function, providing employee services,
managing welfare distribution, representing on one hand; and also acing
as an agent of management and the state in resolving disputes, maintain­
ing labour discipline, and exhorting workers to higher productivity, on the
other.

The findings of this thesis showed that management-employee relations

was cooperative (MER2); enterprises employed extensive communication
(MER1), relatively widely used self-management teams (MER5). The
trade union in the SOEs played four roles: assistant to management,
caretaker, and representative of employees and training programme or­
ganizer. In COEs, the trade union passed on the suggestions from em­
ployees to directors in order to improve the production. In FIEs, the
management-labour relationship was good due to the sophisticated and
well-functional trade union, worked as both workers’ representative and
assistant management (Zhu, 2005). It was also reflected that the equality

223
between management and labour in terms of access to facilities (MER3)
and operational information (MER7) was not clearly defined. This might
be due to the differences between enterprises under different ownerships.
In SOEs and some COEs, the trade union performed the role of evaluating
the management’s performance based on the information of firms per­
formance and operation, while in the PIEs and FIEs, employees rarely had
this type of opportunity (Zhu, 2005), nor did they in some FIEs (Morris et
al, 2009).

No preferences on whether the employee-management meeting was held

regularly (MER6) and whether participative management was widely
used (MER4) were found. This might be due to the differences between
industries. According to the existing literature, in SOEs, the Workers
Congress was held regularly and the congress members were involved
into the management decision-making. In COEs, the main role of the trade
union was to take care of employees. However, in POEs, a union was not
required by law, and the unionization rate was far lower than those in
SOEs and COEs, thus the communication and management-labour rela­
tions seemed problematic in POEs, as there was always one-way com­
munication, namely, the employees followed the employers’ instructions
(Cooke, 2005; Zhu, 2005).

It was implied by the findings of this thesis that the manage­

ment-employee relationships were cooperative, with extensive commu­
nication. Problems were found in the use of employee’s participation into
management. Usually, workers were involved in the decision-making
process mainly via providing suggestions to management and deci­
sion-makers. Besides, gaps between firms under different ownerships
existed. In SOEs and COEs, the workers congress had the right to evalu-

224
ated management’s performance regularly. In some PIEs workers can
offer their suggestions through communication mechanism, but in POEs,
and some PIEs or JVs, there were only one way communication system
from top to bottom.

8.3.8 The Overall State of the Application of HRM in the PRC

As summarized by previous researches, from the late 1980s, firms in the
PRC began to get on track with international business practices. Internally,
this resulted in the form of greater formalization, and the drawing up of
explicit rules and procedures to guide the running of the firm. Firms drew
up sets o f organizational rules and established job descriptions, appoint­
ment procedures, promotion tests and grievance procedures (Tang and
Ward, 2003).

With regard to the application of HRM in the PRC, it was found in this
thesis that the HRM already started to change to a strategic model, and the
foundation for this change was established. HR has achieved a strategic
position in enterprises and the fits between HR activities. However, fur­
ther efforts were required to advance this reform so as to build a
long-term-oriented and sophisticated strategic HRM model. The current
state o f the application o f HRM in the PRC was characterized by gaps in
the strategic use o f HRM systems and functions. This could be found at
both HRM system level and HRM function level. As to the former, the HR
gained a high position in firm and participated in the decision-making
process. Yet, there were gaps between different HR functions. HR plan­
ning, appraisal, staffing and management-employee relationship were
found to be more formal and more long-term focused than training and
compensation. W ith regard to the latter, gaps were found within certain

225
H R functions. For example, firms constructed and used formal recruit­
m ent and selection procedures and measure in staffing function, but the
selection procedures were still not extensive as expected.

The reasons for these gaps are twofold: on one hand, Chinese HRM was at
the initial stages o f a change to a strategic model. The sense and the
principles o f formalization and long-term orientation were established,
and a high position and strategic role of HR were recognized. However,
m ore time and effort was needed to build up the whole system, to deepen
this change on every aspects o f HRM and to strengthen the strategic role
o f HR, including both strategic decision-making and change-agent. Also,
the H R activities and functions were required to link to each other more
strongly. On the other hand, there was a distinction between the rules and
the application. According to Weber (1978), rationality at work can be
divided into two types: formal rationality and substantive rationality. The
form er entails the impersonal application of a rule applying equally to all
to keep exceptions to a minimum. The latter desires to judge each indi­
vidual case on it merits, the rule serving merely as a rough guide in the
hand o f someone who should take full account of the specifics of the
situation. While all societies, institutions and organizations contain ele­
ments o f both types of rationality, in China the balance has traditionally
leaned more heavily than in the West toward substantive rationality (Tang
and Ward, 2003). Put another way, Chinese people are more used to rely
on m an’s judgement more than regulations. In this case, more efforts were
needed to enforce people to follow rules.

T o sum up the indications of the findings of this research, it was found that
H R in China started to change to a strategic model, by taking a high po­
sition and formalization. The discussion above supported the argument

226
that HRM in PRC is undergoing a reform, leading Chinese HR to being
more strategic, although much work was needed to be done to mature the
strategic HRM systems.

8.4 Hypotheses Testing

In this section, the discussion focuses on the hypotheses in the empirical
model presented in Chapter 4. Basically, the results of the data analysis of
this research supported or partially supported 11 of 20 sub-hypotheses
(Table 29). O f those unsupported hypotheses, three were about the impact
of business strategies, and four were related to contextual variables’
moderating effects.

Table 29: Summary o f the Outcomes of Hypotheses Testing

Hypotheses Not Partially Supported
Supported Supported
HI a: innovation strategy has (i) negative
influence on HR planning and (ii) positively
HI (i)
influences on compensation, training and HI (ii)
management-employee relationship.
H2: quality-enhancement strategy has posi­
tive influence on HR planning, compensa­
H2
tion, training and management-employee
relationship.
H3: cost-reduction strategy has (i) positive
influence on HR planning and (ii) negative H3 (i),
H3 (ii)
influence on compensation, training and
management-employee relations.
H4a: HRM policies have positive impact on
(i) HR outcomes, (ii) organizational out­
H4a(i),
H4a (iii)
comes and (iii) no significant impact on H4a (ii)
financial accounting outcomes

227
Table 29 continued
Hypotheses Not Partially Supported
Supported Supported
H4b: HR outcomes have positive impact on
(i) organizational outcomes, and (ii) finan­ H4b(i)
H4b(ii)
cial accounting outcomes
H4c: organizational outcomes have positive
H4c
impact on financial accounting outcomes
H5a: HR outcomes mediate the relation­
ships between HRM policies and organiza­ H5a

tional outcomes
H5b: organizational outcomes mediate the
relationship between HR outcomes and fi­ H5b
nancial accounting outcomes.
H6: the relationships proposed by H1-H5
H6 (i),
are moderated by (i) organizational age, (ii) H6 (ii),
H6 (iii),
organizational size, (iii) workplace culture, H6 (v),
H6 (iv),
(iv) union presence, (v) ownership, (vi) or­ H6 (vi)
H6 (vii)
ganizational life cycle, (vii) business sector.

8.4.1 The Effects of Business Strategies

Competitive strategies’ effects on HRM policies and practices have been
tested in both China’s business firms (Ding and Akhtar, 200; Ge and Ding,
2005) and non-Chinese context (Katou and Budhwar, 2010). According to
the results o f this research, only quality enhancement strategy exerted
significant impact on the adoption o f HRM policies. This finding was
consistent with previous findings that quality-enhancement strategy is
dominant among Chinese firms (Ge and Ding, 2005). O f the seven
sub-hypotheses in this research, four were supported by the data analysis
results. The possible reasons for dominance of quality-enhancement
strategy and the weakness of application and impact of cost-reduction and
innovation strategies might be: first, as Chinese economy is still a transi­
tional economy and with a huge domestic market of a comparably low
level of marketization. The industries in this market were not yet ad­

228
vanced and well developed. Thus, the competition between firms was
focused on the quality rather that the innovative characteristics of the
products and services (Cooke, 2007). Second, the development strategy is
high energy consuming and the labour cost in the PRC was substantially
low in comparison with Western countries. Third, innovation strategy is
more prevalent in technology industry, but ‘up to now China’s technology
has not yet achieved the status of technological innovation hub (Chow et
al., 2007, p53) ’. Moreover, this research is of a cross-industry nature, the
role played by innovation in technology industry could be abated by the
existence o f large proportion of firms in other industries of the researched
firms.

8.4.2 The Effects of HRM policies on Organizational Performance

This section discusses the link between HRM and three elements of or­
ganizational performance: HR outcomes, organizational outcomes and
financial accounting outcomes. The basic argument of configurational
approach o f SHRM modelling is that the fits between HRM elements
result in a superior performance (Delery and Doty, 1996; Guest, 1997;
Lepak and Snell, 2006). It was found in this research that HR planning,
training and management-employee relations exerted significant and
positive impact on HR outcomes. 45.1% of the variance in HR outcomes
was explained. O f the four HRM policy configurations, HR planning and
management-employee relations significantly impacted organizational
outcomes. 28.0% of the variance in organizational outcomes was pre­
dicted by the independent variables. Looking at the results concerning
financial accounting outcomes, it was found that none of the four HRM
policy configurations significantly predicted it. T he empirical results
supported or partially supported all the sub-hypotheses of H4a, and also

229
supported the argument o f Dyer and Reeves (1995) that HRM policies and
practices had the most significant impact on HR outcomes and less sig­
nificant impact on organizational outcomes and least impact on financial
accounting outcomes, due to the increase of the distance of these out­
comes to HRM. Put another way, HR outcomes are the most immediate
consequence o f HRM policies and practices, while organizational out­
comes are more distal to HRM policies and practices and so received
weaker predication o f them. Compared to HR outcomes and organiza­
tional outcomes, financial accounting outcomes are the most distal one to
HRM policies and practices, which thus was least influenced. Similar
findings were reported under Chinese context by Akhtar et al. (2008). In
their research, all the HR practices explained 23% of the variance in
product/service related performance and 16% in financial performance.
The product/service performance received more contribution from HRM
than financial performance did. However, Ngo et al. (2008) reported some
opposite findings that HRM practices significantly impact both opera­
tional and financial outcomes. One plausible reason could be that their
researched firms were all in manufacturing industry, whose financial
performance relied on HR outcomes and operational outcomes less than
those in service industry. In service industry, the performance of the firms
is to a large extent determined by the ability and skills of front-line people
(Combs et al., 2006). As the sample firms of this research were in both
manufacturing industry and service industry, the role of employee-related
outcomes should be crucial in predicting the financial accounting out­
comes.

As to the unsupported the sub-hypotheses concerning the HRM policies’

impact on performance, the author could only speculate about the reasons.
It was plausible that differences existed between the proposed HRM

230
policies and the realized HRM policies. Truss and Gratton (1994) con­
tended that realized human resource interventions are those HR activities
that take place within the organization, and they may or may not be in
response to any articulated HR strategy. Further, Purcell and Wright
(2007) also suggested that there should be a construct/variable referring to
perceived outcomes following the realized practices and prior to em­
ployee related outcomes. This research was a cross-sectional research in
nature, which collective data of dependent variables and independent
variables at same time point. This may neglect the lag-effect of HRM
policy implementation.

8.4.3 The Mediation Effects of HR Outcomes and Organizational Out­

comes
It was found that HR outcomes partially mediated the impact of HRM
policies on organizational outcomes. Specifically, HR outcomes exerted
significant impact on both organizational outcomes and financial ac­
counting outcomes, and HRM policies significantly impact the organiza­
tional outcomes. When both HRM policies and HR outcomes were en­
tered in regression as independent variables, the influence of HRM poli­
cies on organizational performance decreased. These findings supported
the argument about the hierarchical or step based intervening effects of
HRM on organizational performance (Dyer and Reeves, 1995). Besides, it
is, to large extent, consistent with the causal model for the relationship
between HRM and performance proposed by (Boselie, 2005). At theo­
retical level, the findings were in line with AMO theory (Appelbaum et al.,
2000; Boselie et al., 2005; Lepak et al., 2006) that HRM policies and
practices were focused on developing employees’ ability to perform, im­
proving employees’ motivation to perform and creating opportunities for
employees to make contributions. Consequently, the increased em­
ployee-related outcomes, such as employee’s skills, motivation and be­
haviour, further encourage the organizational outcomes (Katou and
Budhwar, 2010).

As to the mediation effects of organizational outcomes in the impact of

HR outcomes on financial accounting outcomes, it supported not only the
step-based intervening effects of HRM on performance (Dyer and Reeves,
1995; Boselie wt al., 2005) but also the impact of the HR outcomes on
financial accounting outcomes (Lepak et al., 2006). Meanwhile, it was in
line with the HRM’s intervening steps proposed by Purcell and Wright
(2007) that employee-related outcomes can be divided into attitudinal
outcomes and behavioural outcomes; that HRM should impact em­
ployee’s attitudinal outcomes and consequently influence employee’s
behaviour outcomes.

These finding encouraged firms to draw more attention on em­

ployee-related outcomes and organizational outcomes, in order to ulti­
mately increase their financial accounting outcomes, and provided sup­
porting evidence against the criticism o f HRM’s contribution to organ­
izational performance.

8.4.4 The Moderation Effects of Organizational Contextual Variables

It was found that organizational age, workplace culture, union presence
and business sector did not significantly moderate the proposed rela­
tionships of H1-H5, while organizational size, ownership and organiza­
tional life cycle significantly moderated some of the proposed relation­
ships of H1-H5.

232
Findings as to the moderation effects of organizational contextual vari­
ables under Chinese context were reported by scholars. Organizational
age was found negatively moderating HRM’s impact on performance
(Akhtar et al., 2008; Wei and Lau, 2008). In this research, however, or­
ganizational age did not exert any moderation. Size positively moderated
HRM’s impact on performance in Wei and Lau’s (2008) research, which
was consistent with the finding of this research.

In this research, workplace culture exerted no significant moderation on

any proposed relations. On the contrary, Chow et al. (2007) found that
sharing culture positively moderating the impact of HRM incentives on
overall performance. It might because that on one hand that culture con­
structs in these two pieces of research measured different contents, though
under same name. For another thing, the methods used to test moderation
effects were different. This research used culture as a control variable,
while Chow and colleagues used the interactions between culture and
HRM practices as independent variables in multiple regressions. Thus, to
further speculate about the way in which culture exerted mediation.

Ownership (Chow et al., 2007; Ngo et al., 2008; Wei and Lau, 2008) was
found to be a valid moderator under Chinese context. Ngo et al., (2008)
found that both SHRM and HR practices had direct and positive effects on
financial and operational performance, as well as employee relations
climate. But, ownership only moderated the relationship for financial
performance. Similarly, this research found that state owned enterprises
positively moderated the impact on financial account outcomes compared
to collectively owned enterprises, which could plausibly explain the ad­
vantage and favouring policies enjoyed by state owned enterprises in the

233
PRC and the high level o f financial outcomes achieved by them. Foreign
invested enterprises had a lower level of HR outcomes compared to col­
lectively owned enterprises, which means they were suffering from the
difficulty of enhancing employee-related outcomes.

Union presence did not moderate the relationships proposed by H1-H5.

Although union presence’s moderation was not tested in SHRM research
under Chinese context, this finding was not surprising, as the union in
China is not of the same nature as it counterpart in Western countries. In
the PRC, trade union is mainly engaged in administrative and welfare
issues rather than employee representation and collective bargaining
(Cooke et al., 2005).

Business sectors were found not moderating any relationships in this re­
search, which was consistent with the Akhtar et al.’s (2008) research
findings. In their research, same typology of business sectors was used.
However, moderation effects were found at industry level in previous
research. Ngo et al. (2008) found heavy manufacturing and light manu­
facturing industries significantly and positively moderating the relation­
ships between HRM policies and practices and operational performance.
Wei and Lau (2008) reported manufacturing industry compared with
non-manufacturing industry negatively moderating the impact of SHRM
practices on net profit, but the effect size was quite small (/?. -.009,/?. 0.1).
Thus, in the PRC, whether industry or business sector should be used as
moderato in SHRM research required further investigation.

Organizational life cycle was not tested in SHRM research under Chinese
context, it was that in this research that firms at starting-up stage of or­
ganizational life cycle, compared with those at mature stage, had higher
/

234
level of HR outcomes, and firms at tuming-around stage had a higher
level of HR outcomes but a lower level of financial accounting outcomes.
Both starting-up and tuming-around stages indicate a state of transfor­
mation and instability. Firms, at starting-up stage, are focused on taking
more market share and building up the organizational structure. Thus, the
employees’ performance should be a crucial factor. Firms at turning up
stage are seeking to either restructure organizations or to embark on doing
new business, in which employee related performance are still a deter­
minant of success. Besides, at this stage, firms usually place their em­
phasis on achieving objectives like entering into new business area, pro­
viding new products or restructuring themselves, rather than the financial
accounting outcomes. Thus the discussions above were supported by the
findings of this research.

8.5 Summary
This chapter presented discussions about the findings of this research. The
chapter was ordered according to the sequence of hypotheses in concep­
tual model presented in Chapter 4.

First, the results o f statistical tests proved that the measurements of

business strategies, HRM policies and organizational performance were
valid in the Chinese context. There were three noteworthy points. One
was that the HRM policy measurements, selected from research in
Western settings, can be used in China-based research in the future, and
HRM policies in the researched enterprises achieved an inter-consistency,
which also indicated a trend of adopting a strategic model of HRM. The
second point was that the validity o f the factor analysis of organizational
performance proved that organizational performance construct consisted

235
of multiple sub-constructs, which further provided the basis to test me­
diation effects, like HR outcomes and organizational outcomes in this
research. Third, the validity o f the strategic role of HR function proved
that proposed strategic roles o f HR function in this research and filled the
gap of strategic role o f HR function in strategy formulation in empirical
research.

Second, the tests o f the hypotheses proved the influences of business

strategies on HRM policies, and HRM policies’ positive impact on HR
outcomes and organizational outcomes, while no significant impact on
financial accounting outcomes. These findings supported that hierarchical
effects or step-based intervening mechanism of HRM on organizational
performance. Since HR outcomes and organizational outcomes are re­
garded more proximal to HRM policies and practices than financial per­
formance, HRM policies should have stronger impact on HR outcomes
and organizational outcomes than on financial accounting outcomes
(Dyer and Reeves, 1995). It revealed the fact that HRM policies to some
extent were aligned with business strategies o f firms under Chinese con­
text, and that HRM policies have impact on multiple outcomes, including
employee related outcomes, organizational outcomes and financial ac­
counting outcomes.

Finally, the research found that HR outcomes played a mediating role

between HRM policies and organizational outcomes, and organizational
outcomes played a mediating role between HR outcomes and financial
accounting outcomes. This finding supports the theoretical work of Dyer
and Reeves (1995). It also offered evidence against the criticism of the
contribution o f HR to organizational performance, due to the lack of solid

236
empirical evidence o f the link between HRM and financial accounting
outcomes.

237
Chapter Nine

Conclusions

238
Chapter 9 Conclusions

9.1 Introduction
The final chapter concludes the research endeavours by presenting a re­
search summary of the overall study, followed by a summary of the key
findings and conclusions from descriptive data analysis, exploratory
factor analysis and regression analysis. So far, limited research on SHRM
has been done in the PRC and it has mainly focused on the testing of
theoretical assumptions developed in the Western world. This research
has built a PRC-based model of SHRM. The findings from this research
make several contributions to the literature on SHRM. Finally, this
chapter finishes with a discussion of implications, limitations and sug­
gestions for future research directions.

9.2 The Summary of Research

The objectives o f this thesis were fourfold: First, to investigate the ap­
plication of SHRM practices in the PRC and, second, to test west­
ern-designed theory in a transitional economy context are the first two
objectives o f this research. To fulfil these objectives, this research used
empirical data collected from the PRC to investigate the current status of
HRM in the PRC, to test the inter-consistency between HRM policies and
to explore the sub-constructs of organizational performance and strategic
role of HR function. Then it employed multiple regressions to test the
impact of business strategies on HRM policies and HRM policies’ in­
fluences on organizational performance. It went further to test the me­
diation effects o f HR outcomes and organizational outcomes in
HRM-performance link.

239
In respect o f the third objective of building a dynamic conceptual SHRM
model, the focus was no longer merely the basic arguments or assump­
tions of SHRM or HPWS or the HRM- performance link, but the
neo-contingency approach of organizational change. Specifically, com­
petence and resource based strategy formulation theory and changing role
HR function were the two primary theories. This model differed itself
from others by reflecting on the way how the changes go on over a time
period rather than just giving a snapshot o f one way causal relationships.

Fourth, it aims to explore the structure, elements and roles of constraints

in SHRM. It explored the strategic role of H R function in the whole
process o f SHRM, and explored structure and elements of organizational
performance, and the effects of mediators between HRM and performance.
By doing this, it can further promote the significance of HR’s strategy
formulation role, and improve the understanding of the process of HRM-
performance linkage, which used to be researched in a black box fashion
(at least, was under-researched).

To achieve the research objectives, the following research questions were

developed:
1) What is the current state of the application o f SHRM in PRC, what are
the relationships between business strategies, HRM polices and or­
ganizational performance?
2) What are the elements and what is the structure of organizational
performance, and what are the links between organizational per­
formance elements?
3) What strategic roles does the HR function play in the organization?
4) How do organizational contextual factors influence the linkages in
SHRM system?

240
To answer these research questions, a critical literature review on the
SHRM research, HRM in the PRC was conducted. Based on the literature
and research interests, a dynamic model of SHRM system was developed.
In this model, there were 20 hypotheses. 13 of which were relationships
between constructs and the other 7 ones were moderator effects of control
variables. To test the hypotheses in the conceptual model, empirical data
was collected by self-administrated questionnaires from Beijing.

The current state o f the application of SHRM in the PRC was explored via
descriptive data analysis. By doing exploratory factor analysis, it revealed
the structure and elements of the strategic role of HR function and or­
ganizational performance. The multiple regressions tested the hypotheses
in conceptual model. The results o f the research objectives, questions and
hypothesis testing were summarized and presented in Table 30 and Table
31.

Table 30: Objectives, Questions and Hypotheses Testing

Objective Question Hypothesis and data analysis
application o f SHRM practices in PRC Question 1 Descriptive analysis
and t-test
test the western theory in transitional Question H1-H6
economic context (PRC) 1,2, 3 and 4
build a model to describe the dynamics Conceptual model
or interactions between the SHRM
variables
explore the structure, elements and Question 2, Exploratory factor analysis of
roles o f constructs in SHRM (the 3. strategic role o f HR function
strategic role o f HR function and or­ and organizational perform­
ganizational performance) ance H5

241
Table 31: Summary o f the Results o f Hypotheses Testing
Hypotheses Not Sup- Partially Supported
ported Supported
HI: innovation strategy has (i) negative or no
significant influence on HR planning and (ii) HI (ii)
positively influences on compensation, training HI (i)
and management-employee relationship.______
H2: Quality-enhancement strategy has positive
influence on HR planning, compensation, H2
training and management-employee relation-
ship._____________________________________
H3: Cost-reduction strategy has (i) positive
influence on HR planning and (ii) negative H3 (i),
influence on compensation, training and man- H3 (ii)
agement-employee-relationship.____________
H4a: HRM policy configurations have positive
impact on (i) HR outcomes, (ii) organizational H4a (i),
H4a (iii)
outcomes and (iii) no significant influence on H4a (ii)
financial accounting outcomes
H4b: HR outcomes have positive impact on (i)
H4b (i),
organizational outcomes, and (ii) financial ac- H4b(ii)
counting outcomes
H4c: organizational outcomes have positive
H4c
impact on financial accounting outcomes
H5a: HR outcomes mediate the relationships
H5a
between HRM policy configurations and or-
ganizational outcomes___________________
H5b: organizational outcomes mediate the re­
lationship between HR outcomes and financial H5b
accounting outcomes.
H6: the relationships proposed by H1-H5 are
H6 (i),
moderated by (i) organizational age, (ii) or­ H6 (ii),
H6 (iii),
ganizational size, (iii) workplace culture, (iv) H6 (v),
H6 (iv),
union presence, (v) ownership, (vi) organiza- H6 (vi)
H6 (vii)
tional life cycle, (vii) business sector.______

242
9.3 Confirmed and Contributions

9.3.1 Confirmed Model

Based on the results of the regression analyses above, the current model is
portrayed below.

Figure 10: The Confirmed Model

HR Planning Organizational
Outcomes

Financial
Accounting
Outcomes
Compensation
Quality
Enhancement

HR
Outcomes
Management-
Employee
Relations

Training

Figure 10 pictures the confirmed relations among variables. It demonstrates

first, that quality-enhancement strategy positively predicted the adoption
of all the four HRM policy configurations. Innovation strategy and
cost-reduction strategy did not significantly influence the HRM policies.

Second, HR planning and Management-employee relations policies posi­

tively predicated HR outcomes and organizational outcomes, and not
significantly influenced financial accounting outcomes. HR outcomes

243
directly impacted organizational outcomes and financial outcomes. Or­
ganizational outcomes directly impact financial outcomes.

Third, HR outcomes partially mediated the influences of HR planning and

management-employee relations on organizational outcomes. Organiza­
tional outcomes partially mediated the impact of HR outcomes on finan­
cial accounting outcomes.

Finally, organizational size, ownership and organizational life cycle were

found to moderate some o f the links between variables proposed by hy­
pothesis 1 to hypothesis 5.

9.3.2 Contributions
The current statu s o f the H RM in the PRC
It was found that HRM in the researched enterprises was undergoing a
change to a strategic model, which can be reflected by two characteristics:
on one hand, HRM already achieved a high position at strategic deci­
sion-making level. Meanwhile, the inter-consistency between HRM po­
lices has been achieved, which can be seen from the valid results of the
exploratory factor analysis.

On the other hand, the SHRM system was not well developed, and a lot of
effort will be needed to be done to advance the change of HR to be stra­
tegic. The reasons for the need of the further efforts included: first, al­
though having achieved a high position, HR function was needed to play a
better strategy formulation role in enterprises than strategy implementa­
tion role, which meant that HR must improve its ability in detecting and
changing the weaknesses and inappropriateness. Second, although the
inter consistency between HRM polices was achieved in the researched
enterprises, there were imbalances between different HR functions.

244
HR planning, staffing, management-employee relationships were found
more formal and long-term focused than appraisal, compensation, training
and development. While in each single HR function, there was also a
characteristic o f imbalance between different aspects of this function.
Overall, the two characteristics, achieving high position and imbalance of
developments, existed at different levels of HRM system. Thus, further
work was needed to further and deepen the change of HRM to a strategic
model.

HRM-performance link, from a contingency-configurational perspective

In this research, HRM policies contributed to HR outcomes and organ­
izational outcomes directly. It supported the configurational perspective
SHRM modelling, which argues that bundles or HR systems rather than
individual HR policies and practices make contribution to the increase of
organizational performance (Delery and Dolty, 1996; Boselie et al., 2005).
It also supported that HRM contribute directed to HR outcomes and or­
ganizational outcomes rather than financial outcomes, because HR out­
comes and organizational outcomes are more proximal to HRM compared
with financial accounting outcomes (Dyer and Reeves, 1995; Lepak et al.,
2006).

The testing o f the influence of business strategies on HRM policies sup­

ported the contingency perspective of SHRM modelling that business
strategy is a key contingent factor affecting the adoption of HRM policies
(Schuler, 1987; Delery and Doty, 1996; Guest, 1997). It was also found
that under Chinese context quality-enhancement strategy was a dominant
strategy over innovation and cost-reduction strategy.

The intervening mechanism o f H RM on performance

245
According to the results o f exploratory factors analysis, organizational
performance could be divided into three sub-constructs, including HR
outcome, organizational outcome and financial accounting outcome.
Moreover, HR outcomes and organizational outcomes played mediation
roles between HRM and financial accounting performance. This was
consistent with the argument of the structure of organizational perform­
ance in the existing literature (Dyer and Reeves, 1995).

This thesis contributed to the literature by opening the black box of the
link between HRM and organizational performance, drawn on the model
of organizational performance’s structure of Dyer and Reeves (1995), it
empirically proved the structure and uncovered the mediating role played
by HR outcomes and organizational outcomes between HRM and finan­
cial accounting outcomes. In other words, HRM mainly contributed to HR
outcomes and organizational outcomes rather than financial accounting
outcomes. Organizational outcomes were mainly predicted by HR out­
comes, while financial accounting outcomes was predicted by HR out­
comes and organizational outcomes. This research also responded the call
made by Wright and Gardener (2000, p4), ‘ one o f the first issues that
must be settled in the effort to understand how HR practices impact per­
formance is to theorize the means through which this relationship occurs,
in essence specifying the intervening variables between the measure of
HR practices and the measure o f firm performance’.

The effects o f organizational contextual factors on SHRM

It was found that organizational size, ownership and organizational life
cycle were valid moderators for SHRM under Chinese context. The con­
tributions o f these findings were twofold: on one hand, it supported the
contingency perspective o f SHRM model (Delery and Dolty, 1996) and

246
the argument of context-specific HRM (Budhwar and Sparrow, 2002). On
the other hand, it revealed that under Chinese context, organizational size,
ownership and organizational life cycle should be considered when de­
signing or implementing SHRM policies and practices.

T h eo retica l c o n trib u tio n s

SHRM research in neo-contingency approach mainly focused on the

cultural factors of a firm’s location (Sorge and Maurice, 1990; Sorge,
1991). This thesis presented a conceptual model to change the static as­
sumption of the traditional contingency theory, which could be analysed
through a realistic and dynamic approach (Ramirez and Fomerino, 2007).
Traditional contingency theory believed unidirectional interaction and a
static view. Until the work of Donaldson (2001), which presented the
notion of quasi-fit and fit as hetero-performance, the basis for the change
from statistic view to a dynamic view was established. Although
Donaldson (2001) proposed a model of performance driven organiza­
tional change, he merely delivered it at conceptual model, with no em­
pirical supports. Taking the hint from Donaldson’s (2001) work, this
thesis used contingent-configurational perspective of SHRM modelling
(Lepak and Shaw, 2008) and competence and resource based strategy
formulation (Andrews, 1998) theory, to theorize and introduce the per-
formance-strategy link into SHRM model, which has been proposed by
researchers but without theoretic underpinning (Paauwe, 2008).

9.4 Implications, Limitations and Future research

9.4.1 Im plications

Based on the findings, this thesis draws several implications for re­
searchers and practitioners.

247
The Awareness o f Change o f HRM M odel and the Long-lasting Adapta­
tion o f Organization
The argument about the HR change to a strategic model is crucial to both
scholars and practitioners. Based on both existing literature and the
findings o f this research, it was found that HRM in the PRC has been
advanced, along with the development of Chinese economy, to a model of
SHRM. The clear messages for the practitioner here include, first, they
have treat human resources as the source of competitive advantage, which
is against to the conventional view of labour. A strategic view to is that
human resources as a resource of firm can add value to its product and
services, while the conventional view of HR believes that in the PRC the
biggest advantage in China is the "Low Labour Costs'. Admittedly, the
reduction of labour cost can increase profit rate, but only in short term
sense. And other indicators of short-term or bottom-line performance, for
example, return on investment, are not enhanced, let along those
long-term outcomes, like employee outcomes. Second, practitioners have
to lay their focus on not only economic performance, but also, and more
importantly, the social-political performance. To achieve sustainable
successes, firms need to take care o f both customers and the employees,
meet the demand o f both stakeholders and shareholders. Lastly, the prac­
titioners have to know or learn how to management their human resources
to achieve sustainable advantage. The take home point here is how to
establish the barriers to imitation, but, before which, managers should not
simply imitate or copy other firms’ methods of HRM, because the HRM is
a context-specific and culture-specific system (Budhwar and Sparrow,
2002). The way that people view HRM policies and practices should be
systematic and configurational and achieve the inter-consistency between
HRM policies and practices. HRM polices are not independent of each
other and work individually, but influence and inter-correlate to each

248
other. The interactions could be between activities crossing the different
HR functions, like the connection between individual-performance re­
lated pay and on-post training. Thus, when HR staff design the HRM
system, they should achieve fits not only between HR functions but also
between every single HR activities.

To A dopt A B roader Range o f Business Strategies

Both the existing literature and this research revealed a face that of the
three competitive strategies, quality enhancement strategy is the dominant
one and it strongly linked with deployed HRM policies. These findings
informed us the truth that, on one hand, quality matters much more than
innovation and cost-reduction strategies, one the other, HRM policies
were not deployed to be aligned with innovation and cost-reduction
strategies. As the Chinese economy is still at transitional phase, the
dominant task for the Chinese is to transform its development model from
a high-cost and high-pollution one to a more cost-effective and green
model. Thus, the practitioners especially entrepreneurs need to adopt in­
novation strategy and minimize the cost of production and operation. In
adopting and implementation these two strategies, HR is deemed to be
critical resource to provide intellectual supports. For the HR professionals,
to realize the emerging shift of business strategy and have HR well pre­
pared for these changes can not only immeasurably increase the possibil­
ity of future successes, but also further enhance HR’s significance i\
business and management.

Strategic Role o f HR in An Ever-changing Organizational Context

The analysis of the strategic role of HR function suggests that the HR
function in an organization should be treated as a compound construct
consisting not only o f a strategy implementation role but also strategic

249
decision making role. The research findings of this thesis pictured the
current status o f the roles of HR functions, namely, the HR function has
left the old model of pure administration and is moving to the model of
strategic model, by achieving a high position in firms and aligning HRM
to business strategies. But HR should make improvement in the following
aspects including: devolving non-core activities to line managers, build­
ing up a cooperative relationship with line managers to facilitate the de­
livery of HR related work, identifying the barriers to strategy implemen­
tation and organizational change. Above these aspects, HR should also
turn proactive to detect and predict emerging opportunities for firms’
development, and it should also identify the inappropriateness and
weaknesses o f the organizations, and initiate the changes by influencing
the adoption o f strategies, and by helping facilitating the implementation
of these strategies in front of a fast changing environment (Brockbank,
1997).

Understanding HRM-Performance Intervention Mechanism

It is widely accepted that human resource is a source of competitive ad­
vantage and well managed HR make leads to increased organizational
performance.

As stated earlier, HRM has both economic goals and social-political goals,
and both o f the goals require attention of managers, although the eco­
nomic goal often gains priority of the firms focuses. The exploration of
the structure and elements of organizational performance in this research
uncovered the fact that organizational performance is a compound con­
struct, and revealed that there various sub-constructs in organizational
performance, involving HR outcomes, organizational outcomes and fi­
nancial accounting outcomes; However, a key aspect o f HR’s contribution

250
to performance the practitioner should learn is the intervening mechanism
of this contribution. It must be known by the practitioners that these dif­
ferent kinds o f performance are not independent to each other. The im­
provement o f the employee outcomes and organizational outcomes can
consequently improve the financial performance in a sustainable way.

This implies that HRM’s goals involves not only economic goals, like
profitability, return on investment, and return on sale but also the
non-economic goals, like employee outcomes and organizational out­
comes. Managerial staff of firms should lay their focus on both groups of
HRM’s goals, as financial accounting outcomes is of short-term nature,
while the social-political goals can help sustain the development of firms
and achieve long-term success.

Differences across Different Organizational Contextual Factors

It is undoubted that HRM is a context-specific rather that context-free
management system (Budhwar and Sparrow, 2002). It does not mean that
the best practices school is of no value or wrong. As Boxall and Purcell
(2008) contended that the best practice school provides a list of available
practices while the best fit school explores the methods of managing them.
When managing HRM practices, some crucial determinants been identi­
fied and should be taken into account. In this research, it was found that in
the researched firms, organizational size, ownership and organizational
life cycle were valid moderators impacting the links between SHRM
variables. Thus, decision-makers under different context should realize
that the characteristics of these contextual variables also lead to different
requirements for managing human resources.

251
9.4.2 Limitations and Directions for Future Research
There are certain limitations in this thesis. First, there is always the issue
of generalizability in social science research, and this study is no excep­
tion. The data used in this research was collected from Beijing in the PRC.
Although the model presented in this thesis was tested with rigorous
analysis techniques, generalizability needs to be further tested in future
work. The PRC is huge country of massive geographic spread and diver­
sity, and so far the SHRM research has mainly focused on Beijing and the
southeast of the PRC, thus, future research should focus on other areas.

Second, this thesis used a key informant approach. Though this thesis
followed rigorous methodological guidelines in identifying appropriate
informants, guaranteeing anonymity and maximizing respondent objec­
tivity, there is still the potential and possibilities of information bias. In
future research, multiple respondents should be included in order to en­
hance the accuracy of the measures of variables at the organizational
level.

Thirdly, it has been criticised that the lag-effect of the HRM’s impact on
organizational performance were omitted by previous research. Writers
suggested that HRM and performance data should be collected at different
points of time. As a cross-sectional study, however, this research can only
provide a snapshot of the process. So, in order to further explore the
changing process and the dynamics of the model, future research needs to
employ a longitudinal analysis to study the consequences hypothesized by
this model.

Fourthly, in terms of the methodology of SHRM research, although this

thesis explored the structure and elements of certain constructs, all the

252
constructs/variables used in this model were adopted from previous re­
search which, to certain extent, ensured the validity of the measures. As
SHRM system is a one of enormous complexity, new constructs and re­
lationships need to be indentified and studied in future research.

Finally, HRM in the PRC is undergoing rapid and necessary changes.

Although this research has reported some aspects of the application of
SHRM practices in PRC, as some findings presented in previous research
are based on either qualitative or different quantitative measures or items,
it is difficult to make a comparison to see how HRM in PRC has changed
in recent years. Future research should pay more efforts on this issue.

253
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254
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Appendix
Appendix:

Appendix 2: Questionnaire (English)

 SHRM in the Peoples’ Republic of China

Introduction

The purpose o f this survey is to build and test a dynamic SHRM system,
and to explore the elements and structure certain constructs and the rela­
tionships between organizational variables at different levels.

To answer the questions, please either write down your answer or select
one of the options, which could best describe the situation o f your firm.

For each question, please make a separate and independent judgment.

Work at a fairly high speed through the questionnaire and do not worry or
puzzle over individual items.

Your answers are strictly confidential and anonymous, and intended for
academic research only.

Your contribution to the successful outcome o f this research is invaluable;

please answer all the questions as fully and honestly as possible and note
that there are no ‘right’ or ‘wrong’ answer.

Research leading to a PhD conducted by:

Bo Zhang
PhD candidate o f Cardiff Business School, Cardiff University
E-Mail: [email protected]

Under the supervision of

Professor Jonathan L. M orris

289
 A: Organizational Characteristics and Environmental Factor
OWNERSHIP

What is the type o f your company’s ownership?

Collective
State- owned Foreign-invested
owned enter­
enterprise enterprise
prise

Joint venture Privately-owned

enterprise enterprise

AGE

How many years has your company been operating in China?

_________ year (s).

SIZE

Amount o f full-time employee i s __________people.

UNION PRESENCE

Is there trade union(s) in your company? (Please tick on the square against the appropriate

option)
Yes No

LIFE CYCLE

At what development stage is your company at present?

Start-up Growth Maturity Decline Turnaround

290
BUSINESS SECTOR

Electronics
Chemical and
Garment and Engi­
Pharmaceutical
neering

Banking, Fi­ Sales and

nance and In­ Business Ser­ Others

surance vice

WORKPLACE CULTURE

1 2 3 4 5

Embracing paradox □ □ □ □ □

Directness of interpersonal
□ □ □ □ □
approach

Importance o f saving face

□ □ □ □ □
(mianzi)

Respect for position and au­

□ □ □ □ □
thority

Confucian work values □ □ □ □ □

291
B: SHRM Polices and Practices

How do the following HR Planning approaches match those o f your companies?

1 2 3 5

□
□
□
□
Short term HR planning Long term HR planning
□

□
□
□
□
Informal HR planning Formal HR planning
□

□
□
□
□

Implicit job analysis Explicit job analysis

Ambiguously defined job Clearly defined job de­

□

□
□
□
□

description scription

Low employee involvement High employee involve­

□

□
□
□

o f HR planning ment o f HR planning

□

□
□
□
□

The job is simple The job is complex

How do the following HR Staffing approaches match those o f your companies?

1 2 3 4 5

External recruitment
□
□
□
□
□

Internal recruitment sources

sources

Extensive selection
□
□
□
□
□

Limited selection procedure

procedure

Explicit recruitment
□
□
□
□
□

Implicit recruitment criteria

criteria
□
□
□
□
□

Fusion with firm’s culture Capability-and

292
 skill-orientation

□
□
□
□
□
Closed procedure Open procedure

How do the following HR Appraising approaches match those o f your companies?

1 2 3 4 5
□
□
□
□
□
Performance Oriented Behaviour Oriented

The main objective is to

The main objective is to
identify employees’
□
□

□
□
□

provide criteria for pay rise

weakness and improve
and promotion
performance

HR specialists in charge o f High employee participa­

□
□
□

□
□

the appraisal schemes tion

□
□
□
□
□

Individual criteria Group criteria

Conduct appraisal activities Conduct appraisal activi­

□
□
□
□
□

frequently, such as weekly or ties occasionally, such as

monthly based quarterly or yearly based

How do the following HR Compensation approaches match those o f your companies?

1 2 3 4 5
- '
□
□
□
□
□

Low base salaries High base salaries

293
 Few perks □ □ □ □ □ Many perks

Standard, fixed package □ □ □ □ □ Flexible package

No incentives □ □ □ □ □ Many incentive

Short term incentives □ □ □ □ □ Long term incentives

High employment se­

No employment security □ □ □ □ □
curity

No participation □ □ □ □ □ High participation

Position in work □ □ □ □ □ Skills in work

Seniority oriented □ □ □ □ □ Merit oriented

How do the following HR Training and Development approaches match those o f your

companies?

1 2 4 5

Employees need to go
Employees do not need to go
take training pro­
take training programmes □ □ □ □ □
grammes every certain
every certain length o f time
length o f time

Narrow and specific appli­ Broad and general ap­

□ □ □ □ □
cation plication

Limited training □ □ □ □ □ Extensive training

294
 Training credits are
Training credits are not nec­
□ □ □ □ □ tightly linked to pro­
essary for promotion
motion

Quality o f work life

Productivity orientated □ □ □ □ □
oriented

External consultants □ □ □ □ □ Internal experts

Off-post training □ □ □ □ □ On-post training

Hierarchy □ □ □ □ □ Egalitarian

Seniority oriented □ □ □ □ □ Merit oriented

How do the following management-emplovee relationship approaches match those o f

your companies?

1 2 3 4 5

Extensive communica­
□
□
□
□
□

Some communication
tion
□
□
□

□
□

Conflicted Cooperative

Management and em­

Management and employee
□
□
□
□
□

ployee have same facili­

have different facilities
ties

No participative manage­ Participative manage­

□
□
□
□
□

ment in company ment

295
 Widely use self-managed
No self-managed teams □ □ □ □ □
teams

Employee-management
Employee-management
□ □ □ □ □ meetings is held regu­
meeting is held only in need
larly

Regularly providing op­

Most operational informa­
□ □ □ □ □ erational information to
tion is confidential
employees

296
C: Strategic Role o f HR

STRATEGIC ROLE OF HR

Low High
Measures
1 2 3 5

the extent that the human resources department

□
□

□
□

□
is consulted by top management

the extent that HR is considered part o f top

□
□
□
□
□
management

the extent that the human resources department

□
□
□
□
□
is consulted by line managers

the extent that HR frequently helps managers

□
□
□
□
□

and supervisors

the extent that the company’s strategic plan in­

□
□
□
□
□

cludes HR issues explicitly

How effective is it that the programmes held by

□
□
□
□
□

HR can build employees capacity for changes

How effective is it that HR explain the re­

□
□
□
□
□

quirement o f the changes and encourage em­

ployee the support

the extent that the HR strategy is consistent with

□
□
□
□
□

companies’ competitive strategy

the extent that a formal document on HR plan­

□
□
□
□
□

ning is available to strategic planners

□
□
□
□
□

the extent that HR can hold programmes to

297
/
eliminate the resistances to changes

the extent that HR can identify the resistance to

□
□
□
□

□
changes

How effective is it that HR evaluate the current

□
□

□
□
□
people and provide suggestions on change if the

current people is inappropriate

How effective is it that HR evaluate the current

□
□
□
□
□
organizational strategy and provide suggestions

on change if the current strategy is inappropriate

How effective is it that HR evaluate the current

organizational structure and provide suggestions

□
□
□
□
□

on change if the current structure is inappropri­

ate

How effective is it that HR evaluate the current

rewards system and provide suggestions on

□
□
□
□
□

change if the current rewards system is inap­

propriate

How effective is it that HR Evaluate the current

managerial and producing processes and provide

□
□
□
□
□

suggestions on change if the current processes is

inappropriate

298
At w hich PO S IT IO N in organizational hierarchy is H R at in your company?

1 2 3 4 5

^o HR de- First-level di­

Dartment vision

D: Business Strategy

How m uch em phasis does your com pany pose on the following activities?

1 2 3 4 5

Innovation Innovative investing in R

□
□
□
□
□

&D

Innovative introducing
□
□
□

□
□

new products and brands

1

Delivering new products

□
□
□
□
□

and service

Seeking new business

□
□
□

□
□

opportunities
1

Cost reduc­ Reducing the costs of

□
□
□
□
□

tion labour to produce exist­

ing products or services.

Reducing the costs of

materials to produce
□
□
□

□
□

existing products or ser­

vices.

299
 □

□
C ontrolling inventory

Im proving operational

O
□

□
□
efficien cy

O u a litv - im - D ev o tin g tim e to quality

□
orovem ent control

W orking w ith custom ers

or suppliers to im prove

□
□

□
quality of product or

service

Q uality circles □ □ □ □ □

T he effectiv en ess of
□

□
□

com p any’s quality

m anagem ent program

T he im proving the qual­

□

□
□

ity o f existin g products

or services.

300
E: Organizational Performance

Please rate the following items in your company over the past 3-5 year.

1 2 3 4 5

Organizational
Q uality o f product □ □ □ □ □

Outcomes
Public im age and good w ill □ □ □ □ □

Satisfaction o f custom ers or clients □ □ □ □ □

S ta ff turnover rate □ □ □ □ □

HR Outcomes □ □ □ □ □
A bsenteeism

S ta ff morale □ □ □ □ □

E m p loyee com m itm ent □ □ □ □ □

Job satisfaction □ □ □ □ □

The ability o f sta ff to m ove betw een jobs as

□ □ □ □ □
the work dem ands

Financial Ac­ □ □ □ □ □
Growth rate o f revenues

counting Out­
G rowth rate o f market share □ □ □ □ □
comes

Long-run level profitability □ □ □ □ □

301
 Thank you again

for your contribution to this research project

/
302
Appendix 3: Questionnaire (Chinese)
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316